Starting Business Out of Unemployment: How Do Supported Self-employed Individuals Perform?

Abstract

<jats:title>Abstract</jats:title><jats:p>The study empirically contributes to the discussion on the effects of start-up subsidies for unemployed individuals as a part of the active labour market policy. The article provides insights into the survival and performance of the subsidized businesses in the Czech Republic. The study follows up cohorts of self-employed individuals that were supported during years 2009–2017. The obtained findings show that a vast majority of the supported businesses were still officially active 2 years after the allocation of the start-up subsidy, and even later. The firm-level data further relieve that most of the individuals starting a business out of unemployment stay solo (only less than four per cent of self-employed individuals employ besides themselves at least one employee) and the economic outcomes of the subsidized businesses, measured as annual turnover, are rather modest. The empirical results further showed that higher intensity of public support is negatively associated with business closure and positively with employment and turnover categories. The study concludes that the start-up subsidy for unemployed succeeded in activating unemployed individuals to pursue an economic activity, although further research concerning other outcome variables such as personal income, job satisfaction and well-being is needed.</jats:p>

Who is brave enough to start a new business during the Covid-19 pandemic?

“…Entrepreneurship scholars have proved that with the increasing unemployment, some individuals, primarily because of losing their jobs or experiencing a decrease in salaries, seek and exploit new business opportunities to earn income through independent business activity. These persons are called necessity entrepreneurs (Laffineur et al ., 2017; Cheratian et al ., 2019; Justo et al ., 2021; Dvouletý, 2022), and they represent motivation for policymakers to support new business formation, particularly from unemployment, through active labour market policies (ALMP). The reasoning for this policy is straightforward.…”

“…The literature on entrepreneurial motivation (Shane et al ., 2003; Wasowska, 2019; Murnieks et al ., 2020; Coffman and Sunny, 2021) describes several reasons why individuals decide to pursue a business activity or become self-employed. For some of those, it offers a route out of the misery of unemployment or how to solve a difficult life situation and earn income for a living when the institutional and economic conditions are unfavourable (Laffineur et al ., 2017; Cheratian et al ., 2019; Justo et al ., 2021; Dvouletý, 2022). However, it is a career choice that is fraught with danger, as evidenced by the high rates of new business failure, particularly in the formative early years (Watson and Everett, 1993; Kücher et al ., 2020; Fuertes-Callén et al ., 2020).…”

Unemployment benefits, entrepreneurship policies, and new business creation

“…Depending on their business for daily economic survival, necessity entrepreneurs usually have lower expectations for innovation and growth in terms of jobs created, as they are aware that such ambitions would be difficult for them to accomplish (Hessels et al, 2008b ). They are more often solo workers (Roman et al, 2013 ; Fairlie & Fossen, 2020 ; Dvouletý, 2022 ) and do not have the alternative option of a paying job; therefore, the same reasoning does not apply.…”

UK government-backed start-up loans: Tackling disadvantage and credit rationing of new entrepreneurs

“…Public aid provides the unemployed with financial resources to purchase the necessary equipment, motivates them to return to economic activity, and maintains their working habits. Furthermore, it results in the termination of paying them unemployment benefits (Brewer and Gibson, 2016;Dvouletý, 2021;Sánchez-Cañizares et al, 2020).…”