Does the Self-employment Policy Reduce Unemployment and Increase Employment? Empirical Evidence from the Czech Regions

Abstract

Abstract Empirical evidence related to the effectivity and outcomes of the self-employment programmes in the Central and Eastern Europe is still very rare, despite the important role of entrepreneurship in the economic development of post-communist economies. The main purpose of this study was to empirically investigate the impact of self-employment subsidy for unemployed in the Czech NUTS 3 regions for the period of years 2012–2015 to provide policy makers supportive material useful for policy adjustments. The study applies quantitative research framework, which is based on the construction of econometric models. Estimated regression models with region fixed effects supported the negative association between the amount of supported self-employed and unemployment rates in the Czech regions. This finding is theoretically framed by the theory of necessity entrepreneurship. Positive spillover of the programme (‘a double dividend’), was econometrically tested on the regional employment rates. Obtained estimates found that there is a positive contemporaneous relationship (weakly significant) between the number of supported self-employed and the employment rates but not in the lag. Analysis of the costs revealed that the costs of self-employment programme are not that high, if one takes into account the alternative costs of unemployment benefits paid to the unemployed and social insurance paid back to the state by the newly established self-employed. Therefore, this tool of active labour market policy has a potential of wider usage. Nevertheless, the applied empirical strategy was based on the regional level and has its limitations. Provided results need to be interpreted cautiously, without any causal inference, because the true outcomes of the programme could be analysed only on the level of supported individuals. Future research should therefore challenge the effectiveness of the start-up subsidy programmes in the Czech Republic on the level of individuals, with focus on the survival rates of subsidized businesses and incomes of their formerly unemployed owners.