The Impact of Personal Characteristics and the Regional Milieu on the Transition from Unemployment to Self-employment: Empirical Evidence for Germany

The focus of this paper is on the choice of the unemployed between becoming an entrepreneur or not. It contributes to the literature by empirically investigating the impact of personal characteristics and attitudes, and of the regional "entrepreneurial milieu", on the individual decision to start a new business out of unemployment. The econometric study is based on data from a recent representative survey of the population in ten German planning regions. We use a version of the logit model that takes care of both the rare events nature of the transition from unemployment to self-employment, and of the regional stratification of the data, and the results of the non linear models are carefully interpreted and illustrated. We show that lack of personal contact with a young entrepreneur reduces the probability of starting one's own business. A favourable 'regional entrepreneurial milieu' (proxied by higher levels of current start-up activity and larger shares of unemployed among the starters in a region) has a positive effect on the individual propensity to step into self-employment. All these impacts are not only statistically significant, but economically important, too. A comparison of unemployed with employed and not employed nascent entrepreneurs reveals remarkable differences regarding the impact of sex, age, and higher education, while the positive impact of personal contacts with a young entrepreneur and of a comparable high share of nascent entrepreneurs in the region holds across all groups.