The Contribution of New Businesses to Regional Employment-An Empirical Analysis

Abstract

We investigated regional differences in the contribution of newly founded businesses to regional employment. The analysis was at the spatial level of West German planning regions for the period 1984–2002. We found pronounced differences for the employment contribution of new businesses across regions. Regression analyses of these differences show that the regional level of new business formation explains only a part of the employment effect. More important than the mere presence of startups is their quality in terms of their survival rate and growth rates. A large share of innovation activity in small businesses in a region, a high educational level of the regional workforce, and the wide availability of labor have a significantly positive impact. Our results suggest that the success of newcomers is not necessarily at the expense of incumbents but that the development of both kinds of businesses may be positively interlinked.

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