Does Quality Make a Difference? Employment Effects of High- and Low-Quality Start-Ups

34 Pages Posted: 7 Jun 2011

See all articles by Michael Fritsch

Michael Fritsch

University of Jena - School of Economics and Business Administration

Alexandra Schroeter

University of Jena

Date Written: May 1, 2011

Abstract

This paper investigates the impact of new firms' quality on the magnitude of their employment effects. Our results clearly show that the quality of start-ups, measured by their affiliation with sectors and innovative industries, strongly influences the direct and the overall employment contribution of new firms. In particular, start-ups in manufacturing industries generate larger direct and overall growth effects than those in services. Moreover, new businesses in innovative manufacturing and in knowledge-intensive service industries make a larger direct contribution to employment than start-ups affiliated with other industries. We also find a relatively strong overall effect of new business formation in knowledge-intensive service industries. However, the impact of start-ups in innovative manufacturing industries on overall regional employment growth is not statistically significant, which may be mainly due to their rather small share in all start-ups and because they impact more on firms and employment in other regions than do start-ups in non-innovative manufacturing. Finally, we discuss the implications for entrepreneurship policy that can be derived from our findings.

Keywords: Entrepreneurship, new business formation, innovative industries, regional development, entrepreneurship policy

JEL Classification: L26, M13, O1, O18, R11

Suggested Citation

Fritsch, Michael and Schroeter, Alexandra, Does Quality Make a Difference? Employment Effects of High- and Low-Quality Start-Ups (May 1, 2011). DIW Berlin Discussion Paper No. 1128, Available at SSRN: https://ssrn.com/abstract=1858747 or http://dx.doi.org/10.2139/ssrn.1858747

Michael Fritsch (Contact Author)

University of Jena - School of Economics and Business Administration ( email )

Carl-Zeiss-Str. 3
D-07743 Jena
Germany

Alexandra Schroeter

University of Jena ( email )

Furstengraben 1
Jena, Thuringa 07743
Germany

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