published in: Scandinavian Journal of Economics, 2006, 108 (2); 317-337.
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.
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