Start-up incentives: Entrepreneurship policy or active labour market programme?

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Abstract

As several European governments develop new start-up programmes during recessions, the appropriateness of these policies recently has become a hot policy issue. This study suggests that the contribution of these incentives is dubious, if aimed to combat economic and jobs crises as part of the entrepreneurship policy, and can be shaped by various country-specific factors, such as the economic situation and the stringency of labour laws. To provide support for these claims, this paper investigates the underlying determinants of an individual's decision to switch from unemployment to self-employment in Europe and stresses the need to devote special attention to the role of three essential dimensions: (i) the existing heterogeneity within self-employment, by considering self-employed individuals who hire employees (employers) and self-employed individuals without personnel (own-account workers) as separated groups; (ii) the effects of different measures of social capital and network contacts, as forms of micro level institutional factors; and (iii) the explanatory power of cross-country differences in the state of the economy, expenditure on start-up incentives, and the stringency of labour laws, as forms of macro level institutional factors. This study has useful theory and policy implications for entrepreneurship development.

Section snippets

Executive summary

The European entrepreneurship policy has traditionally highlighted the need to create the best possible micro and macro-environment for small business and entrepreneurship. However, as a clear sign of the distance between political speech and political action, its more remarkable initiatives have revealed a marked bias in favour of measures promoting transitions from unemployment to self-employment, which has been used as an instrument within the active labour market policies as a way to reduce

Conceptual framework

The high degree of agreement on the importance of entrepreneurs' role in society contrasts, however, with the existing variety of definitions and views of entrepreneurship (see Davidsson, 2004, chap. 1 for a review). Offering a real contribution in this field is far from the scope of this study. On the contrary, this work uses a labour market perspective and concentrates on the particular social reality that some unemployed individuals (rather than working for somebody else under an employment

Data

We used data from the European Community Household Panel (henceforth ECHP) covering the period 1994–2001.18

Results

This study investigates the determinants of the transition from unemployment to own-account work or employership in Europe with a special focus on the roles of social capital, business cycles and labour market regulation. Table 1 provides a correlation table together with variance inflation factors (VIFs) and some descriptive statistics. The maximum correlation is 0.50 (between age and cohabiting status), and the VIFs range from 1.01 to 1.96. Thus, multicollinearity does not pose a concern, in

Conclusions

As several European governments show a renewed interest in the development and implementation of new start-up programmes during recessions, the appropriateness of these policies is likely to enter the arena of present policy debate. Nevertheless, because the self-employed can be considered a heterogeneous group, among which only a minority of self-employed people contribute to job creation, economic growth and innovation, more self-employment is not necessarily better. Furthermore,

Acknowledgements

The authors would like to thank the Managing Guest Editor, Devereaux Jennings, and two anonymous reviewers for their insightful comments that contributed substantially to the development of this paper. They would also like to thank Mirjam van Praag, Juan A. Sanchis and André van Stel for their helpful comments and suggestions. The work also has benefited from comments from participants at the XXIV RENT Conference – Research in Entrepreneurship and Small Business – (Maastricht, 2010), and a

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