Working Papers Uwe Dulleck Paul Frijters Rudolf Winter-ebmer Reducing Start-up Costs for New Firms: the Double Dividend on the Labor Market Department of Economics University of Vienna Reducing Start-up Costs for New Firms: the Double Dividend on the Labor Market

Starting a firm with expansive potential is an option for educated and high-skilled workers. This option serves as an insurance against unemployment caused by labor market frictions and hence increases the incentives for education. We show within a matching model that reducing the start-up costs for new firms results in higher take-up rates of education. It also leads, through a thick-market externality, to higher rates of job creation for high-skilled labor as well as average match productivity. We provide empirical evidence to support our argument.