Macroeconomic determinants of enterprise births in European countries: The moderating role of human capital in the unemployment structure

Abstract

Research background: While micro-level studies evidence that unemployment increases the probability of being self-employed, the findings at the macro-scale are ambiguous. At the macroscale, the unemployment push mechanism is further conditioned by cyclical fluctuations and industry-specific characteristics. Most studies, however, have neglected the heterogeneity of the group of unemployed, which could also be behind the disparate results.

Purpose of the article: In filling this gap, the study aims to examine the links between the unemployment rate and enterprise births, while considering the unemployment structure in terms of the human capital of the unemployed and the unemployment duration.

Methods: The issue is examined using the example of 20 European countries in the period 2004–2020. The fixed- and random-effects panel models were applied. The sectoral diversity of entrepreneurial activity (manufacturing, wholesaling and retailing, professional and scientific activities, ICT), and the size class of the newly established enterprises (with/without employees) are also considered.

Findings & value added: The study reveals that the share of long-term unemployment and the skill structure of the unemployed have an impact on new firm formation, which varies with the knowledge intensity of the start-ups and their size. A higher share of highly qualified unemployed increases the start-up rates, particularly in knowledge-intensive services and manufacturing. A higher share of long-term unemployed has a negative impact on enterprise births, specifically in new businesses with employees. The findings are important for designing effective instruments to address unemployment by entrepreneurship within active labour market policy.