Business Cycles, Unemployment and Entrepreneurial Entry: Evidence from Germany

41 Pages Posted: 4 Jan 2014

See all articles by Michael Fritsch

Michael Fritsch

University of Jena - School of Economics and Business Administration

Alexander Kritikos

Europa-Universitaet Viadrina - Fakultat fur Wirtschaftswissenschaften; German Institute for Economic Research (DIW Berlin); IZA Institute of Labor Economics

Katharina Pijnenburg

German Institute for Economic Research (DIW Berlin)

Abstract

We investigate whether people are more willing to become self-employed during boom periods or during recessions and to what extent business cycles or unemployment levels influence entries into entrepreneurship. Our analysis for Germany reveals that there is a positive relationship between unemployment rates and start-up activities. Moreover, new business formation is higher during recessions than in boom periods. This implies that new business formation is counter-cyclical. When disentangling periods of low and high unemployment we find that the effect of unemployment on new business formation is only statistically significant if the level of unemployment is below the trend, indicating a "low unemployment retain effect".

Keywords: self-employment, business cycle, unemployment, start-up

JEL Classification: L26, E32

Suggested Citation

Fritsch, Michael and Kritikos, Alexander S. and Pijnenburg, Katharina, Business Cycles, Unemployment and Entrepreneurial Entry: Evidence from Germany. IZA Discussion Paper No. 7852, Available at SSRN: https://ssrn.com/abstract=2374633

Michael Fritsch (Contact Author)

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

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

Alexander S. Kritikos

Europa-Universitaet Viadrina - Fakultat fur Wirtschaftswissenschaften ( email )

15230 Frankfurt (Oder)
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Katharina Pijnenburg

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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