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This dissertation consists of five self-contained essays, addressing different aspects of career choices, especially the choice of entrepreneurship, under risk and ambiguity. In Chapter 2, the first essay develops an occupational choice model with boundedly rational agents, who lack information, receive noisy feedback, and are restricted in their decisions by their personality, to analyze and explain puzzling empirical evidence on entrepreneurial decision processes. In the second essay, in Chapter 3, I contribute to the literature on entrepreneurial choice by constructing a general career choice model on the basis of the assumption that outcomes are partially ambiguous. The third essay, in Chapter 4, theoretically and empirically analyzes the impact of media on career choices, where information on entrepreneurship provided by the media is treated as an informational shock affecting prior beliefs. The fourth essay, presented in Chapter 5, contains an empirical analysis of the effects of cyclical macro variables (GDP and unemployment) on innovative start-ups in Germany. In the fifth, and last, essay in Chapter 6, we examine whether information on personality is useful for advice, using the example of career advice.
Start-up incentives targeted at unemployed individuals have become an important tool of the Active Labor Market Policy (ALMP) to fight unemployment in many countries in recent years. In contrast to traditional ALMP instruments like training measures, wage subsidies, or job creation schemes, which are aimed at reintegrating unemployed individuals into dependent employment, start-up incentives are a fundamentally different approach to ALMP, in that they intend to encourage and help unemployed individuals to exit unemployment by entering self-employment and, thus, by creating their own jobs. In this sense, start-up incentives for unemployed individuals serve not only as employment and social policy to activate job seekers and combat unemployment but also as business policy to promote entrepreneurship. The corresponding empirical literature on this topic so far has been mainly focused on the individual labor market perspective, however. The main part of the thesis at hand examines the new start-up subsidy (“Gründungszuschuss”) in Germany and consists of four empirical analyses that extend the existing evidence on start-up incentives for unemployed individuals from multiple perspectives and in the following directions:
First, it provides the first impact evaluation of the new start-up subsidy in Germany. The results indicate that participation in the new start-up subsidy has significant positive and persistent effects on both reintegration into the labor market as well as the income profiles of participants, in line with previous evidence on comparable German and international programs, which emphasizes the general potential of start-up incentives as part of the broader ALMP toolset. Furthermore, a new innovative sensitivity analysis of the applied propensity score matching approach integrates findings from entrepreneurship and labor market research about the key role of an individual’s personality on start-up decision, business performance, as well as general labor market outcomes, into the impact evaluation of start-up incentives. The sensitivity analysis with regard to the inclusion and exclusion of usually unobserved personality variables reveals that differences in the estimated treatment effects are small in magnitude and mostly insignificant. Consequently, concerns about potential overestimation of treatment effects in previous evaluation studies of similar start-up incentives due to usually unobservable personality variables are less justified, as long as the set of observed control variables is sufficiently informative (Chapter 2).
Second, the thesis expands our knowledge about the longer-term business performance and potential of subsidized businesses arising from the start-up subsidy program. In absolute terms, the analysis shows that a relatively high share of subsidized founders successfully survives in the market with their original businesses in the medium to long run. The subsidy also yields a “double dividend” to a certain extent in terms of additional job creation. Compared to “regular”, i.e., non-subsidized new businesses founded by non-unemployed individuals in the same quarter, however, the economic and growth-related impulses set by participants of the subsidy program are only limited with regard to employment growth, innovation activity, or investment. Further investigations of possible reasons for these differences show that differential business growth paths of subsidized founders in the longer run seem to be mainly limited by higher restrictions to access capital and by unobserved factors, such as less growth-oriented business strategies and intentions, as well as lower (subjective) entrepreneurial persistence. Taken together, the program has only limited potential as a business and entrepreneurship policy intended to induce innovation and economic growth (Chapters 3 and 4).
And third, an empirical analysis on the level of German regional labor markets yields that there is a high regional variation in subsidized start-up activity relative to overall new business formation. The positive correlation between regular start-up intensity and the share among all unemployed individuals who participate in the start-up subsidy program suggests that (nascent) unemployed founders also profit from the beneficial effects of regional entrepreneurship capital. Moreover, the analysis of potential deadweight and displacement effects from an aggregated regional perspective emphasizes that the start-up subsidy for unemployed individuals represents a market intervention into existing markets, which affects incumbents and potentially produces inefficiencies and market distortions. This macro perspective deserves more attention and research in the future (Chapter 5).
Offering unemployed individuals a subsidy to become self-employed is a widespread active labor market policy strategy. Previous studies have illustrated its high effectiveness to help participants escaping unemployment and improving their labor market prospects compared to other unemployed individuals. However, the examination of start-up subsidies from a business perspective has only received little attention to date. Using a new dataset based on a survey allows us to compare subsidized start-ups out of unemployment with regular business founders, with respect to not only personal characteristics but also business outcomes. The results indicate that previously unemployed entrepreneurs face disadvantages in variables correlated with entrepreneurial ability and access to capital. Nineteen months after start-up, the subsidized businesses experience higher survival, but lag behind regular business founders in terms of income, business growth and innovation. Moreover, we show that expected deadweight effects related to start-up subsidies occur on a (much) lower scale than usually assumed.
Based on a large, representative German household panel, we investigate to what extent the personality of individuals influences the entry decision into and the exit decision from self-employment. We reveal that some traits, such as openness to experience, extraversion, and risk tolerance affect entry, but different ones, such as agreeableness or different parameter values of risk tolerance, affect exit from self-employment. Only locus of control has a similar influence on the entry and exit decisions. The explanatory power of all observed traits among all observable variables amounts to 30 %, with risk tolerance, locus of control, and openness having the highest explanatory power.
Experimental evidence reveals that there is a strong willingness to trust and to act in both positively and negatively reciprocal ways. So far it is rarely analyzed whether these variables of social cognition influence everyday decision making behavior. We focus on entrepreneurs who are permanently facing exchange processes in the interplay with investors, sellers, and buyers, as well as needing to trust others and reciprocate with their network. We base our analysis on the German Socio-Economic Panel with its recently introduced questions about trust, positive reciprocity, and negative reciprocity to examine the extent that these variables influence the entrepreneurial decision processes. More specifically, we analyze whether (i) the willingness to trust other people influences the probability of starting a business; (ii) trust, positive reciprocity, and negative reciprocity influence the exit probability of entrepreneurs; and (iii) willingness to trust and to act reciprocally influences the probability of being an entrepreneur versus an employee or a manager. Our findings reveal that, in particular, trust impacts entrepreneurial development. Interestingly, entrepreneurs are more trustful than employees, but much less trustful than managers.