Design and effectiveness of start-up subsidies: Evidence from a policy reform in Germany

While a growing body of literature finds positive impacts Start-Up Subsidies (SUS) on labor market outcomes participants, little is known about how the design these programs shapes their effectiveness and hence to improve policy. As experimental variation in program unavailable, we exploit 2011 reform current German SUS for unemployed which strengthened caseworkers’ discretionary power, increased entry requirements reduced monetary support. We estimate impact program’s using samples participants non-participants from before after reform. To control time-constant unobserved heterogeneity as well differential selection patterns based observable characteristics over time, combine Difference-in-Differences with inverse probability weighting covariate balancing propensity scores. Holding participants’ observed macroeconomic conditions constant, results suggest that was successful raising employment effects average. findings may be contaminated by changes characteristics, assess our simulation-based sensitivity analyses find estimates are highly robust characteristics. Hence, most likely had program, suggesting increasing reducing support while cost per participant.