DP4172 Reducing Start-Up Costs for New Firms: The Double Dividend on the Labour Market

Author(s): Uwe Dulleck , Paul Frijters , Rudolf Winter-Ebmer

Publication Date: January 2004

Keyword(s): matching , education , start-up costs , venture capital

JEL(s): D73 , J24 , J68

Programme Areas: Labour Economics

Link to this Page: www.cepr.org/pubs/dps/DP4172.asp

Starting a firm with expansive potential is an option for educated and high-skilled workers. This option serves as an insurance against unemployment caused by labour market frictions and hence increases the incentives for education. We show within a matching model that reducing the start-up costs for new firms results in higher take-up rates of education. It also leads, through a thick-market externality, to higher rates of job creation for high-skilled labour as well as average match productivity. We provide empirical evidence to support our argument.