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): education, matching, start-up costs, venture capital
JEL(s): D73, J24, J68
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4172

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.