Start me up: The Effectiveness of a Self-Employment Programme for Needy Unemployed People in Germany*

Transcription

1 Start me up: The Effectveness of a Self-Employment Programme for Needy Unemployed People n Germany* Joachm Wolff Anton Nvorozhkn Date: 22/10/2008 Abstract In recent years actvaton of means-tested unemployment beneft recpents has become a major ssue of European labour market polcy. We study the effect of partcpaton n a new busness start-up scheme for needy unemployed people n Germany. The programme was ntroduced at the begnnng of the year 2005 together wth a new means-tested beneft system. We used data from admnstratve records to draw a sample of needy partcpants who entered the programme from February to Aprl 2005 and of an adequate control group. Even though these data are qute rch n terms of nformaton on the labour market performance and ndvdual and household characterstcs, they do not provde nformaton on unsubsdsed self-employment. Therefore, usng matchng methods we estmate the mpact of the programme partcpaton on the outcomes nether beng regstered as unemployed nor as a job-seeker and no recept of unemployment beneft II. Our estmates mply that even by the tme when nearly no partcpant receves the start-up subsdy any longer treatment reduces consderably the proporton of regstered job-seekers and of meanstested beneft recpents among the treated. Moreover, there s no substantal varaton of these effects over dfferent populaton groups. JEL classfcaton: C13, H43, J68 Keywords: Propensty score matchng, treatment effects, evaluaton of actve labour market polcy, start-up subsdes, means-tested beneft recpents * We are extremely grateful to Cordula Zabel and Frank Weßner for ther helpful comments. Insttute for Employment Research and Labor and Soco-Economc Research Center, Nuremberg, Germany, emal: Joachm.Wolff@ab.de Insttute for Employment Research, Nuremberg, Germany, emal: Anton.Nvorozhkn@ab.de

2 IABDscussonPaper No. X/ CONTENTS 1. Introducton Insttutonal Framework Lterature Revew Theoretcal Consderatons and Hypotheses Methods and Data Methods Data Estmaton Results Implementaton Senstvty Analyses and Match Qualty Average Treatment Effects on the Treated Summary and Conclusons References Tables and Fgures... 23

3 IABDscussonPaper No. X/ Introducton Due to hgh and persstent unemployment n the last years German labour market polcy reforms concentrated to a large extent on actvaton polces. 1 One of the reforms was mplemented wth the ntroducton of the Socal Code II. A new means-tested beneft, the unemployment beneft II (UB II), was ntroduced at the start of the year It replaced the two former means-tested benefts, unemployment assstance and socal assstance. The reform emphasses actvaton polces. One of these actvaton polces s a subsdy to take-up jobs, the so called Enstegsgeld. It may be granted to needy unemployed both for startng ther own busness as well as for enterng contrbutory employment. However, n the year 2005 the latter opton made up for less than 15 percent of the programme starts. Therefore, ths paper deals only wth effects of Enstegsgeld as a start-up subsdy on partcpants. We study whether partcpaton n the scheme mproves the labour market performance of partcpants. The start-up subsdy can be pad for up to 24 months, though usually s receved for much shorter perods. In 2005 less than 20 thousand people started the programme, whch was a low number compared wth an average stock of about 2.8 mllon needy unemployed. The nflow nto the Enstegsgeld start-up scheme s also low compared wth the nflow nto two start-up programmes for unemployment nsurance (UI) beneft recpents, the brdgng allowance and the Exstenzgründungszuschuss wth more than 150 thousand and more than 90 thousand programme starts n 2005, respectvely. There are varous reasons to beleve that many potental needy entrepreneurs dd not receve the subsdy. Frst of all the UB II agences who have to grant the subsdy were just set-up at the start of the year 2005 wth partly nexperenced staff and a huge task of mplementng the reform. Moreover, the start-up programme was new and case managers had no experence wth mplementng t. For these reasons t s lkely that a large number of UB II recpents who potentally could have set-up ther own busness were not enttled to the subsdy. Our study estmates the effect of programme partcpaton usng matchng methods. The effects are estmated for the nflow nto the self-employment scheme durng the months February to Aprl We only regard programme partcpants f they were unemployed on 31 st January 2005 and receved UB II at that tme. The potental control group members stem from a 20 percent random sample of needy persons n the UB II unemployment stock at the end of January Of course we excluded all people from the stock of needy unemployed, who entered the self-employment programme from February to Aprl However, controls may enter ths programme at later ponts n tme. Hence, we estmate the effect of jonng the programme from February to Aprl In contrast to most evaluaton studes that estmate programme effects wth admnstratve data, we can ncorporate consderable nformaton on the household of programme partcpants and control ndvduals. Wth the ntroducton of the Socal Code II and a related new data collecton system at the local unemployment beneft II agences for the frst tme admnstratve mcro 1 A comprehensve descrpton of recent nsttutonal changes of German labour market polcy can be found n Jacob and Kluve (2007). These reforms are well known n Germany as the Hartz reforms, as many of them were proposed by a commsson that was led by Peter Hartz, head of the personnel executve commttee of Volkswagen.

4 IABDscussonPaper No. X/ data on all members of needy households s avalable n Germany. 2 In turn any member of an UB II recpent household can be tracked over tme. Hence, for our treatments and controls also data on ther partners or other household members on employment, unemployment, actve labour market programme partcpaton or beneft recept from other admnstratve data sources can be retreved for our analyss. We are manly concerned wth effects of programme partcpaton on the outcomes nether regstered as unemployed nor job-seekng and no UB II recept. Unfortunately we cannot focus on an outcome lke unsubsdzed selfemployment, whch would be best suted to evaluate the success of the startups. Ths pece of nformaton s not avalable n the admnstratve data. But the two outcomes we focus on provde some evdence on whether due to the subsdy partcpants were ntegrated successfully nto the labour market. The paper s structured as follows: Secton two descrbes the nsttutonal set-up of the new unemployment beneft II and of the Enstegsgeld programme. In secton three, we provde a short lterature revew on the effectveness of selfemployment programmes n Germany. Secton four dscusses theoretcal consderatons for our analyss together wth some key hypotheses of our study. The methods and data are descrbed n secton fve. We dscuss the results of our analyss n secton sx and brefly summarze and conclude n secton seven. 2. Insttutonal Framework Wth the ntroducton of the Socal Code II at the start of the year 2005 major reforms of the German unemployment compensaton system came nto force (the so called Hartz IV -reforms). A new means-tested beneft system was ntroduced: The unemployment beneft II (UB II) replaced the former means-test unemployment assstance (UA) and socal assstance (SA) for needy people who are capable of workng. 3,4 The reform dd not generally cut beneft levels for 2 Before the year 2005 admnstratve mcro data of the Federal Labour Agency contaned nformaton on unemployment assstance recpents, but not on the members of ther needy household. Systematc admnstratve mcro data on socal assstance recpents from all muncpaltes, whch were responsble for ths beneft scheme, were not avalable. Wth the excepton of 69 muncpaltes, snce 2005 the Federal Labour Agency and muncpaltes are jontly responsble for the new beneft scheme, such that regster data of the local UB II agences are comparable and moreover contan nformaton on all members of the needy household. 3 The old unemployment nsurance (UI) beneft was labelled as unemployment beneft I. It s earnngs-related wth a replacement rate of 67 percent of the last net ncome for a parent and 60 percent for chldless people. The UI beneft n contrast to UB II s tmelmted, where the length of recept ncreases wth the tme a recpent has contrbuted to unemployment nsurance wthn a perod of seven years pror to the beneft clam. The maxmum duraton of UI recept though depends on age and was one year for those aged younger than 45 n the year It ncreased for older age groups and those older than 56 years could even receve ther UI beneft up to 32 months. The maxmum UI enttlement lengths of those older than 44 years though were consderably reduced n the year People who are aged between 15 and 64 years and can work under the usual condtons of the labour market for at least three hours a day are regarded as capable of workng. Only due to an llness or dsablty, t s possble not to fulfl ths crteron (Artcle 8 Socal Code II).

5 IABDscussonPaper No. X/ needy households. 5 The central dea behnd ntroducng the Socal Code II was to actvate needy people, so that more of them are ntegrated nto the labour market and ther beneft dependency s reduced. Ths s of partcular mportance for people who wthout the reform would have receved SA beneft as well as for people who would have been partners or other household members of a UA beneft recpent. Wthout the reform such people would not necessarly have been n contact wth labour agences, regstered as unemployed or as jobseekers nor would they have qualfed for many types of actve labour market polces. Due to the reform ths has changed. Each member of a needy household, who s capable of workng, s supposed to contrbute to reducng the dependency on the means-tested beneft. The Socal Code II demands efforts of unemployed persons wth regard to job search and other actvtes to mprove ther chances of fndng a job. Integraton contracts and beneft sanctons for those who do not comply to the rules are nstruments to rase such efforts. On the other hand, the reform provdes more possbltes of assstng unemployed persons towards employment take-up and n partcular lead to more ntensve actve labour market polces. In order to provde fnancal ncentves to UB II recpents to take-up regular jobs, together wth the Socal Code II the so called Enstegsgeld programme (Artcle 29 Socal Code II) was ntroduced. The UB II agences have the possblty to provde a temporary supplementary beneft to UB II recpents both for startng a contrbutory job as well as for startng-up ther own busness. Accordng to Artcle 29 Socal Code II, the beneft can be pad for up 24 months. The level of the beneft should depend postvely on the prevous unemployment duraton of the recpent as well as the sze of the needy household. The Socal Code does not explctly regulate the mplementaton of the programme. It does not even state an upper cap for the Enstegsgeld beneft. However, a manual of the Federal Employment Agency (Federal Employment Agency, 2005) does specfy how the UB II agences are supposed to mplement ths dscretonary programme. 6 It specfes the Enstegsgeld beneft level n relaton to the base UB II, whch n the year of the ntroducton of the Socal Code II was 345 Euro per month n West Germany and 331 Euro per month n 5 Blos and Rudolph (2005) showed n a smulaton study based on mcro data from an ncome and consumpton survey how the beneft levels of former socal assstance recpents and former unemployment assstance recpents were affected by the beneft reform. It dd not much affect beneft levels of households of former socal beneft recpents. However, about 17 percent of former unemployment assstance recpents no longer qualfed for the new means-tested beneft. Of those former unemployment assstance households, whch qualfed for UB II, about 50 percent faced beneft reductons and 50 percent a beneft ncrease. 6 For a detaled descrpton of the mplementaton of the programme n the year 2005 see Noll, Wolff, and Nvorozhkn (2006).

6 IABDscussonPaper No. X/ East Germany. 7 Accordng to the manual the Enstegsgeld beneft should amount to 50 percent of the base beneft plus ten percent of the base beneft for each addtonal member of the needy household. It should even be hgher provded that the programme partcpant was unemployed for at least two years and/or s a person that for other reasons s hard to place. The base beneft level tself s the upper cap of the supplementary beneft. Whether these rules on the beneft level were mplemented durng the year 2005 s not entrely clear. Noll, Wolff and Nvorozhkn (2006) studed ths queston wth admnstratve mcro data of the Enstegsgeld partcpants and found some evdence for t. Nevertheless, ther study remaned largely nconclusve, snce the data of ths early perod was charactersed by more than 35 percent mssng values for the level of the Enstegsgeld subsdy. As ths study also reles on these data, we cannot provde a more precse statement for the perod under revew. The manual of the Federal Employment Agency also recommends that the supplementary Enstegsgeld beneft should only be pad to UB II recpents who take up a contrbutory job of at least 15 workng hours weekly or start-up a busness as ther man occupaton. The objectve behnd that restrcton s to promote only employment that leads the needy household out of beneft recept. The nflow nto the Enstegsgeld programme s relatvely low. Table 1 presents the average unemployment stock of UB II recpents and the nflow nto the programme over the perod 2005 to The fgures n Table 1 exclude 69 muncpaltes, whch n contrast to most muncpaltes admnster the UB II on ther own and not together wth the Federal Labour Agency. About 15 percent of needy unemployed people belong to these muncpaltes. The nflow nto the selfemployment scheme ranges from about 17 to more than 32 thousand per year. The number of programme starts s even lower as far as we regard the Enstegsgeld for startng contrbutory employment. The annual average unemployment stock of UB II recpents nstead amounts to about 2.2 to 2.4 mllon people. The number of programme starts s also qute low when we compare t to the largest programmes. One-Euro-Jobs, a workfare scheme for UB II recpents, s charactersed by an annual nflow of 600 up to more than 700 thousand people and a short-term tranng programme by an annual nflow of about 400 to 440 thousand. The low number of programme starts may have varous reasons. One reason s that the programme was entrely new. For ths reason the staff n the UB II agences had no past experence wth selectng potental partcpants and admnsterng the programme. That the nflow nto the programme s partcularly low n the year of ts ntroducton s n lne wth ths hypothess and suggests that 7 These are the numbers for a lone adult or lone parent. The base beneft n East Germany was rased to the Western level n July On top of the base beneft there are addtonal elements n the unemployment beneft II formula: Needy households receve a beneft that covers the costs of accommodaton and heatng. Moreover, for former UI recpents an addtonal beneft s pad durng the frst two years after exhaustng UI. Ths addtonal beneft s related to the dfference between the sum of the former UI and housng beneft recept and the UB II beneft level. It amounts to two thrds of ths dfference n the frst year after runnng out of UI recept. However, there s an upper cap for the addtonal beneft of 160 Euro for sngles and 320 Euro for partners. For each chld that lves n the needy household of a person who s elgble for the addtonal beneft, the upper cap s rased by 60 Euro. In the second year after exhaustng UI beneft recept the addtonal beneft s cut by 50 percent.

7 IABDscussonPaper No. X/ the UB II agences expermented wth the programme pror to mplementng t at larger scale. However, there are other reasons for the low nflow nto the nto the self-employment scheme. It may be that there s only a small number of needy unemployed who are actually lkely to successfully start ther own busness. And credt constrants that would be bndng for many poor households even concernng addtonal fnancal means of the start-up subsdy may also play an mportant role n explanng the low nflow. Fnally, there may be a sortng effect: Durng UI recept currently another start-up scheme and n the year 2005 even two such schemes were avalable to unemployed people. In contrast to Enstegsgeld these subsdes have to be granted provded that the UI recpent can provde a sold busness plan that s approved by a chamber of commerce. 8 Therefore, there may be an ncentve to apply for such a scheme pror to losng UI recept and becomng needy. 3. Lterature Revew The evaluaton of treatment effects of start-up subsdes receved a relatvely lmted attenton n the economc lterature. Recent nternatonal evdence ncludes studes conducted n the UK, New Zealand, Span, and Germany. Meager et al. (2003) for the case of the UK conclude that the start-up programme offered to young males dd not produce any vsble effect. The comparson group was selected based on age, gender, regon and employment status. Partcpaton n the program dd not ncrease earnngs and reemployment potental compared to non-partcpaton. The mpact of partcpaton n the half-year start-up programme n New Zealand s analysed by Perry (2006). The author adopts a dfference-n-dfference framework together wth propensty score matchng to analyse dfferences n the probablty of re-regsterng wth the publc employment offce two years after the programme start. The man concluson of the author s that partcpants of the programme were less lkely to re-regster wth the publc employment offce. The analyss of the busness start-up schemes n Span s lmted to one regon. Cueto and Mato (2006) analyse survval rates of the subsdsed frms dstngushng between exts due to busness falures and exts to contrbutory employment. The authors fnd that after fve years the survval rate of subsdsed 8 Durng the perod that we analyse there were two start-up schemes for UI recpents: the start-up subsdy (Exstenzgründungszuschuss) and the brdgng allowance (Überbrückungsgeld). The start-up subsdy pad a beneft for three years. Durng the frst year t was 600 Euro per month. The subsdy decreased to 360 Euro per month n the second and 240 Euro per month n the thrd year. The brdgng allowance n contrast subsdzed a start-up for a shorter perod of tme. The subsdy was pad for sx months and s equal to the prevously receved unemployment beneft (plus a lump sum to cover socal securty contrbutons). Both programmes were charactersed by a far larger nflow than the Enstegsgeld scheme, e.g., n the year 2005 the nflow nto the brdgng allowance amounted to 157 thousand people, whle for the start-up subsdy the correspondng number was 91 thousand people. For a detaled descrpton of these programmes see Baumgartner and Calendo (2007). They were merged to a new start-up subsdy labelled as Gründungszuschuss by the md of the year Ths new scheme pays as a start-up subsdy the UI beneft plus a lump sum of 300 Euro per month; the latter sum s ntended to cover health nsurance cost. The enttlement length of the subsdy s nne months. The recept may be prolonged for another sx months.

8 IABDscussonPaper No. X/ frms s equal to 76%. The drawback of the study s that there s no control group and thus the study does not meet basc evaluaton crtera. Besdes the above mentoned studes there exsts a rapdly growng area of busness start-up evaluatons n Germany. Early research ncluded studes by Pfeffer and Reze (2000) and Reze (2004). Pfeffer and Reze (2000) compare the survval probablty of frms of unemployed people who started ther busness recevng a start-up subsdy wth that of a control group of frms started by unemployed people who dd not receve the subsdy by the publc employment offce. The authors consder regonal heterogenety and thus conduct separate analyses for East and West Germany. The results of the study mply that subsdsed frms n East Germany had lower chances of survval compared wth unsubsdsed ones. At the same tme no sgnfcant relatonshp between subsdes and frm survval was found n West Germany. Reze (2004) analyses transtons n and out of unemployment and concludes that comparng to other exts out of unemployment ndvduals who started ther busnesses after a perod of unemployment had the lowest chance of regsterng wth the employment offce agan. Recent results on the evaluaton of the German start-up programmes for the unemployed are presented n Baumgartner and Calendo (2007). Two programmes were analysed: the start-up subsdy and the brdgng allowance as descrbed n secton two. An mportant feature of both studes s that the authors use regstry datasets combned wth a follow-up survey. The nformaton was collected for unemployed people who entered the busness start-up programme n the thrd quarter of 2003 and a group of elgble non-partcpants. Baumgartner and Calendo (2007) adopt a propensty score matchng estmator to estmate the earnngs and employment effect. The results ndcate that the programmes produce a sgnfcant and large gan n terms of earnngs and the employment probablty of the treated. The results are however heterogeneous, the effect s partcularly pronounced for men. As a fnal part of the exercse the authors conduct a smple cost beneft analyss and conclude that both start-up programmes are effectve and the brdgng allowance also an effcent polcy tool. Calendo and Krtkos (2007) look at the survval rates of the subsdsed frms and fnd that the probablty of the frm survval after 2.5 years after busness foundng s qute hgh, around 70%. At the same tme the authors observe consderable heterogenety n the characterstcs of the entrepreneurs whch nfluence ther success. It should also be kept n mnd that the results for the evaluaton of the start-up subsdy are prelmnary snce the partcpants of ths programme stll receve the subsdy 2.5 years after startng ther busness. The presented studes report consderable dfferences n the effect of the start-up schemes. A comparson of the results s complcated due to the dfferent nsttutonal set-up n dfferent countres, dfferent tme perods and macroeconomc condtons. Our paper ams to extend the knowledge about the treatment effect of start-up schemes for the unemployed n Germany by regardng needy unemployed and a new start-up scheme that s only avalable to them. In the followng secton we wll outlne some theoretcal consderatons and present hypotheses of our study.

9 IABDscussonPaper No. X/ Theoretcal Consderatons and Hypotheses Government nterventons such as provson of start-up subsdes to the unemployed and socal beneft recpents may be justfed because of the exstence of the market mperfectons. Market mperfectons may lead to the undernvestment problem, a stuaton n whch vable busnesses would not be funded. Poor unemployed people and hence especally recpents of the means-tested benefts are usually credt constraned. If access to credt s lmted but "bad" jobs are easy to come by, then job seekers may choose to get an undesrable job nstead of openng a busness (Brownng et. al, 2007). Start-up subsdes are also mportant from the socal pont of vew snce the entrepreneur values only ts own prvate return and does not take nto account publc benefts of new busness creaton, such as: creaton of addtonal work places, developng entrepreneur culture n the country. Besdes the desred effects of the busness start-up schemes lke enablng unemployed people to become self-employed and ntegratng them more rapdly nto the labour market, some adverse effects can occur. Among them s a deadweght loss and dsplacement effect. These effects can occur f start-up subsdes drve exstng frms out of the market or prevent the start-up of unsubsdsed frms. These effects are lkely to be pronounced snce t s lkely that most of the busnesses whch are created wth the assstance of the start-up subsdy are n the low cost servce sector. Moreover, lockng-n effects can arse, that reduce efforts made by unemployed persons to search for alternatve better jobs. Whle partcpatng n the busness start-up scheme, a person's search efforts decrease, e.g., because partcpaton reduces the tme avalable for job search. Furthermore partcpaton can reduce the motvaton to look for employment, because partcpants derve some subjectve utlty from programme partcpaton, e.g., due to carryng out a useful task. Job search efforts can already declne before partcpaton started f the unemployed person knows about hs partcpaton n advance ( Ashenfelter s Dp ). Thus, the actual effect of the start-up subsdy on the labour market performance of needy partcpants s not a pror clear. It has to be quantfed by econometrc research. For a number of reasons there should be groups of unemployed people for whch ths partcular programme s lkely to be effectve or neffectve. Let us dscuss some specfc hypotheses, whch our analyss s gong to address. A specfc focus n our evaluaton of the busness start-up scheme s on the future employment and unemployment outcomes of the partcpants. We expect the proporton of regular contrbutory employed programme partcpants to be relatvely low, snce the am of the start-up subsdy s to reduce unemployment by promotng self-employment. Hence, there are negatve treatment effects on the outcome regular contrbutory employment. Moreover employers possbly do not regard start-up programmes as equvalent to regular employment or other forms of qualfcaton (stgma effect). Creamng may be one of the reasons why benefcal effects of programme partcpaton could be weak or absent and adverse lockng-n and stgma effects domnate. Ths may be the case for groups of people wth relatvely good chances of fndng a regular contrbutory job, e.g., people wth hgh qualfcatons, people who are young or who only recently lost ther jobs.

10 IABDscussonPaper No. X/ Fnally, the effects on avodng beneft dependency,.e., on the probablty of no UB II recept are a pror unclear. Gven that non-partcpants have more tme to search for a job, they may be chooser wth respect to wage offers and acheve hgher earnngs n ther jobs than the partcpants do wth ther start-up. Moreover, t s possble that only after a longer perod of tme the ncome of the entrepreneur wll become hgh enough, such that he no longer passes the means-test, than for comparable non-partcpants. In turn the effect of Enstegsgeld on the probablty of avodng UB II recept of the treated may be negatve for qute some tme after programme start, whle the effect n the long run s ambguous. But t may be push-factors that drve needy unemployed people to start ther own busness. I.e., there s an nsuffcent number of contrbutory job offers avalable to them and they are manly low-wage and partly unstable jobs. In turn ther start-up provdes them wth hgher earnngs than alternatve jobs and we would expect the probablty of no UB II recept to be hgher for the partcpants on the busness start-up programme than for comparable non-partcpants. Ths should hold also after partcpants no longer receve ther subsdy. In turn, we would also expect that treatment lowers the proporton of regstered job-seekers among partcpants. 5. Methods and Data 5.1 Methods When evaluatng the programme effects of Enstegsgeld, the problem of unobservable possble outcomes arses. Ths s the fundamental evaluaton problem. The Roy (1951)-Rubn (1974)-Model gves a standard framework for ths problem. The model and the matchng method whch under certan assumptons resolves the evaluaton problem are dscussed n many recent papers, e.g. Calendo and Kopeng (2006) or Sanes (2004). The man pllars n the model are frst ndvduals, second the treatment and thrd potental outcomes. Every ndvdual can potentally be n two states (treatment/no treatment) each wth a possbly dfferent outcome. As no ndvdual can be observed n both of these two states at the same tme, there s always a non-observed state, whch s called the counterfactual. Let D be an ndcator for treatment, whch takes the value one f a person s treated and zero otherwse. The treatment effect τ ATT for a treated ndvdual would be the dfference of hs outcome wth treatment ( Y (1) ) and wthout the treatment ( Y (0)): τ E[ Y (1) Y (0) D = 1] = E[ Y (1) D = 1] E[ Y (0) D = 1] (1) ATT = The outcome of an ndvdual can never be observed n the treatment and the non-treatment state at the same tme, so that the causal effect n equaton (1) s unobservable. Ths dentfcaton problem needs to be resolved. Under certan assumptons a comparson of the outcomes of treatment group members wth very smlar control ndvduals dentfy the average treatment effect on the treated (ATT). 9 9 The decson on whch effect to estmate depends on the research queston. Heckman, LaLonde and Smth (1999) dscuss further parameters.

11 IABDscussonPaper No. X/ Propensty Score Matchng s one approach to dentfy such effects. We follow the dscusson of the approach by Becker and Ichno (2002): Let us defne the propensty score accordng to Rosenbaum and Rubn (1983) as the condtonal probablty of treatment, where X s a vector of observables at values pror to treatment. P X ) = P[ D = 1 X ] = E[ D = 1 X ], (2) ( In ths context some condtons have to hold for dentfyng the treatment effect: the condton of balancng of pre-treatment varables gven the propensty score ( D X P(X )). Accordng to ths condton observatons wth the same propensty score have the same dstrbuton of observables; gven pre-treatment characterstcs, treatment s random and treatments and control unts do on average not dffer wth respect to pre-treatment characterstcs. Next, there are the condtons of unconfoundedness ( Y ( 1), Y (0) D X ) and of unconfoundedness gven the propensty score ( Y( 1), Y (0) D P( X ) ). Unconfoundedness s also labelled as the condtonal ndependence assumpton (CIA) and states that outcomes n case of treatment and non-treatment are ndependent from actual assgnment to treatment gven the propensty score. If treatment s random wthn cells defned by the vector X, t s also random wthn such cells defned by the values of propensty score P (X ), whch n contrast to X has only one dmenson. Gven the above condtons, we have τ ATT = E[ Y (1) Y (0) D = E = E = 1] { E[ Y (1) Y (0) D = 1, P( X )]} { E[ Y (1) D = 1, P( X )] E[ Y (0) D = 0, P( X )] D = 1} The basc dea of the matchng estmator s to substtute the unobservable expected outcome wthout treatment of the treated E Y (0) D = 1, P( X )] by an [ observable expected outcome of a sutable control group E [ Y 0) D = 0, P( X )] (3) ( that has the same dstrbuton of the propensty score as the treatment group. To mplement a matchng estmator, t requres the addtonal assumpton of common support 0 < P ( D = 1 X ) < 1, (4) snce for ndvduals whose probablty of treatment s ether 0 or 1, no counterfactual can be found. Fnally, the "stable unt treatment value assumpton" (SUTVA) has to be made. It states that the ndvdual's potental outcome only depends on hs own partcpaton and not on the treatment status of other ndvduals. It mples that there are nether general equlbrum nor cross-person effects. We estmate the ATT at dfferent ponts n tme after programme start (t=0): τ E Y (1) D = 1, P( X )] E{ E[ Y (0) D = 0, P( X )] D 1} (5) ATT, t = [, t,0,0, t,0,0, 0 = As propensty score matchng estmators we use nearest neghbour and radus matchng mposng common support. Both technques select for each treatment

12 IABDscussonPaper No. X/ observaton one or more comparson ndvduals from a potental control group. The followng equaton defnes these estmators: 10 1 τ ATT = Y (1) wj Y j (0), (6) N treated treated j controls where N treated s the number of treated persons. w j s a weght defned as w j 1 =, (7) N, controls where N, controls represents the number of controls matched to the th treated person. Wth nearest neghbour matchng, ths number s chosen by the researcher: e.g., for each treated ndvdual from the control group fve neghbours are chosen whose propensty score dffers less from that of the treated ndvdual than those of all other control group members. In case of radus matchng, all control group ndvduals are chosen whose propensty score does not dffer n absolute terms from the one of the treatment ndvdual by more than a gven dstance. In that case the number of matched controls may dffer for each treatment ndvdual. For the analytcal varances and hence the standard errors of these estmators see Becker and Ichno (2002). When carryng out the analyss we followed the outlne from Calendo and Kopeng (2006). 5.2 Data For the CIA to hold good data are mportant. It s not enough to thnk about good estmators (Heckman et al., 1998) but a data source that s rch n terms of nformaton on ndvdual characterstcs and n partcular on ther programme partcpaton and other labour market outcomes s essental. Characterstcs on the ndvdual s household are an mportant addton to such nformaton. The data n use are admnstratve data of the German Federal Employment Agency that were prepared for scentfc use at the Insttute for Employment Research and contan the mentoned nformaton on a daly bass. We use samples of the "Integrated Employment Bographes" (IEB). 11 Indvdual nformaton about employment and unemployment hstory, daly earnngs, occupaton, educaton, and actve labour market programme hstory s avalable n these data. We addtonally rely on an offcal job-seeker data base ( Bewerberangebotsdate ) that provdes nformaton on soco-demographc characterstcs. 12 Many evaluaton studes of actve labour market programmes rely on admnstratve data. In contrast to most of these studes, we have the nformaton just descrbed not only for the persons of the treatment and control group but also for members of ther needy household. Ths nformaton s avalable snce the beneft reform of the year 2005, as a new way of regsterng members of means-tested households was ntroduced. As a consequence, a new 10 For smplcty we leave away the subscrpt t for tme after programme start. 11 The samples exclude the 69 dstrcts n whch only local authortes are n charge of admnsterng the unemployment beneft II. For them systematc nformaton on programme partcpaton s not avalable. 12 In partcular t allows to compute covarates on famly status, chldren, mgraton background and health status wth nformaton from ths data base.

13 IABDscussonPaper No. X/ data set, the Unemployment Beneft II Recept Hstory, s avalable, whch contans spells of means-tested beneft recept of all members of a needy household together wth a household dentfer. Hence, our set of covarates that potentally determnes the propensty score s a lot rcher than that of many other comparable studes. Ths s partcularly mportant to justfy the Condtonal Independence Assumpton. For the treatment group we use the total nflow nto Enstegsgeld for start-ups from February to Aprl 2005 of persons who were both regstered unemployed and unemployment beneft II recpents at the end of January We only consder unemployed persons aged 20 to 57 years, snce older UB II recpents do nearly never enter the programme. The potental controls stem from a 20 percent random sample of UB II recpents who were unemployed at 31st January 2005 and who dd not enter the self-employment programme from February to Aprl We carred out the analyss usng the entre control group sample. Gven the small number of partcpants, there s however a number of local UB II agences to whch none of the persons n the treatment sample belong. Therefore, we also used a restrcted control group sample whch a pror excludes 139 out of 487 such unts n the data. We further restrcted the control group sample only to people who lve n the same places of resdence as the treated ndvduals so that out of more than fve thousand dfferent small scale areas where the sample members lve only 540 were represented by the data. All results that we dscuss n the next secton select matched controls from the restrcted sample. For the control group members naturally no programme start s avalable over ths perod n whch treatment started. Therefore, we computed a random programme start for the controls such that t follows the dstrbuton of programme starts of the treatment group over these months and excluded those controls from our analyses who exted from unemployment before the calculated random programme start. 13,14 The data on the outcomes was constructed from two data sources. We used nformaton on whether people are regstered as unemployed or as job-seekers or are employed n a contrbutory job from an addtonal regster data set, the Verblebsnachwese. These admnstratve data have one great advantage over the IEB (verson 6.00), whch also contans such nformaton. They provde the nformaton for a more recent past. Ths s mportant snce we deal wth a relatvely recent treatment and need to observe outcomes for a suffcently long 13 When computng the random programme start, we took nto account dfferences of the dstrbuton of programme starts between East and West Germany. If between 31 st of January 2005 and ther (computed or true) programme start control or treatment group members already exted from unemployment (e.g., due to some other programme partcpaton), they were dsmssed from our samples. 14 The data collected by the UB II agences at the begnnng of the year 2005 s certanly charactersed by some measurement error. Ths s not surprsng, gven that more than three mllon needy households wth more than sx mllon beneft recpents had to be regstered accordng to the new system. In partcular, a new software, A2ll, was ntroduced to regster basc nformaton on benefts and other trats of the needy households and ther members. Not all UB II agences provded complete nformaton at the begnnng of the year 2005 wth ths software accordng to the Statstcal Department of the Federal Employment Agency. Therefore to some extent the daly nformaton s not precse. Dates of ndvdual events lke the start or end of beneft recept may not always have been reported or do not precsely reflect the true dates.

14 IABDscussonPaper No. X/ perod of tme after treatment. We can hence regard the outcome unsubsdsed contrbutory employment for 20 months nstead of only eght months. The Verblebsnachwese also allow an observaton wndow of 25 months after programme start for the outcome varables not regstered as unemployed and nether regstered as unemployed nor as job-seeker whch s fve months longer than that of the IEB. The nformaton on the thrd outcome varable unemployment beneft recept stems from another data set, the Unemployment Beneft II Recept Hstory (Lestungshstork Grundscherung) and s avalable for 24 months after programme start. The sample szes of treatments and controls are dsplayed n Table 2. There are more than 1,200 treatments and more than 270,000 potental controls. For the dfferent subsamples for whch the treatment effects were estmated, there are at least 263 treated (women) and up to a maxmum of 944 treated (men). 6. Estmaton Results 6.1 Implementaton We estmated the ATTs for dfferent groups of partcpants n order to dentfy effect heterogenety. Our man nterest s n four groups: men and women, East and West Germany. We also study whether the treatment effect of the start-up subsdy vares wth other characterstcs of the partcpants: We regard relatvely young UB II recpents (25-45 years) and German versus foregn UB II recpents. Next, we dstngush between people who are sngle or lve wth a partner, and people who were ether never employed n a contrbutory job or whose last contrbutory employment ended more than 32 months ago and people whose last job ended durng the last 32 months. The sample szes of treatments and potental controls of these subsamples are dsplayed n Table 2. We nvestgate the effects of partcpaton n the start-up programme on four dfferent outcome varables at dfferent ponts n tme after programme start to have a comprehensve nsght nto the effects of the programme. Frst, we nvestgate the effect of partcpaton on the probablty of beng regularly employed (.e. unsubsdsed contrbutory employment). The effects on ths outcome provde an dea of the extent to whch the treatment by the startup subsdy lowers the probablty of workng n a contrbutory job at dfferent ponts n tme. It s of course not our key outcome varable, snce the start-up subsdy ams at successfully ntegratng the treated nto self-employment. Nevertheless, there s a vald queston that we want to answer: Does treatment by the start-up programme reduce consderably the chances of beng employed n unsubsdsed contrbutory jobs? As an ndcator of the success of the programme a second outcome varable s of much more mportance. We observe whether the persons n our sample are regstered as unemployed or regstered as a job seeker. The second outcome compared to the frst ncludes partcpaton n actve labour market programmes as partcpants are regstered as a job seeker n the majorty of cases. Thus, a person who s nether regstered as unemployed nor as job-seekng can be a) regularly employed wth a workng tme of a least 15 hours a week, for more than three months and earns suffcently to lve on or b) has no longer regstered as unemployed or job-seekng wthout workng. Hence, ths outcome varable by and large can be nterpreted as an ndcator for ether beng employed n a

15 IABDscussonPaper No. X/ regular and rather stable job (both contrbutory employment and selfemployment) or beng out of the labour force. Thrd, we present some results on the sze of the treatment effect on the outcome not regstered as unemployed. People who partcpate n actve labour market programmes or who are temporarly employed for very short perods of tme would not be regstered as unemployed, but usually are regstered as jobseekers. Fnally, we observe whether the household of the person and hence the person receves UB II. If the household no longer receves UB II at some pont n tme, t may be due to the household beng no longer needy or t stopped applyng for benefts. For the frst of these two possbltes there can be several reasons: the person n our sample or other members n the person s household start to acheve suffcent earnngs both by subsdsed and unsubsdsed employment, such that the household no longer passes the means-test. Varous changes n the household composton may also lead to such a result. E.g., a person n our sample moves to another household wth other ncome that s suffcently hgh. Such changes may be affected by treatment. E.g., due to the start-up subsdy for one member of the household and an expected success of the start-up that mples addtonal fnancal means, other household members may less ntensvely search for jobs or are less lkely to set-up ther own household. For each of the analysed groups we estmated one probt model for the probablty to partcpate n the start-up programme. The covarate sets n these analyses contan personal characterstcs (age, natonalty, health ndcators, whether the person s sngle, number of chldren and qualfcaton), labour market hstory (ndcators on unemployment, and regular employment perods n the past, past partcpaton n actve labour market programmes, characterstcs of the last contrbutory job), characterstcs of the partner (labour market hstory and qualfcaton) and fnally regonal characterstcs (dummy varables reflectng a classfcaton of the labour market stuaton developed by Rüb and Werner (2007) and some further controls at dstrct level: unemployment rate, share of long-term-unemployment n the unemployment pool, rato between the vacancy and the unemployment stock n January 2005). These characterstcs should make t lkely that the treatment and control outcomes gven the propensty scores dffer only due to treatment and hence that the unconfoundedness condton holds. In partcular partner characterstcs are new n ths context, as admnstratve data are usually weak on such nformaton. Partner characterstcs play a role for the employment decsons but also for outcomes lke no recept of UB II, e.g., a UB II recpent wth a hgh n contrast to a low sklled partner s more lkely to ext from UB II, when the partner fnds a job. The probt models that we estmated rely on the descrbed set of covarates. Nevertheless, the exact specfcaton of covarate sets dffers over the subgroups. Ths s frst of all because the lower the sample szes, the broader some varables (e.g., dummy varables for age groups) have to be defned. In Table 3 and Table 4 we present the coeffcents of the four probt models that dstngush between men and women and between East and West Germany. The coeffcents of probt models for other subgroups are not presented n ths paper; they are avalable on request.

16 IABDscussonPaper No. X/ Senstvty Analyses and Match Qualty Rosenbaum Bounds Our results are based on the assumpton of unconfoundedness. If there are any unobserved varables that nfluence selecton nto the programme as well as outcome varables of the programme a hdden bas could occur and matchng estmators would not be robust. The basc dea behnd Rosenbaum Bounds s that the odds rato of treatment of two matched ndvduals s one, gven that they are charactersed by the same observables. 15 If there are neglected unobserved factors that nfluence the partcpaton probabltes though, these odds of treatment could change, e.g., to a value two. Wth the help of Rosenbaum bounds we can conduct an analyss that determnes how senstve our results are to the nfluence of an unobserved varable. It shows how strong neglected unobserved factors have to change the odds rato, so that we overestmate or underestmate the treatment effect. We computed the Mantel-Haentzel statstc usng the Stata Programme mhbounds by Becker and Calendo (2007). We calculated the test statstc Q MH for the each of the outcomes n every observed month after programme start for each sample we consdered. Here we dscuss only results on the bounds of the two most mportant outcome varables nether regstered as unemployed nor as a job-seeker and no UB II recept. These are the bounds for nearest neghbour matchng wth one neghbour and wthout replacement, as the mhbounds command can only be appled for nearest neghbour matchng wthout replacement or for stratfcaton matchng (Becker and Calendo 2007). We dscuss the results of ths senstvty analyss only for the sample of men and women and East and West Germans. The effects on the selected outcomes are postve, substantal and sgnfcant, as we wll later dscuss n detal. Let us frst regard the bounds or the outcome nether regstered as unemployed nor as a job-seeker. We fnd unobserved factors that lead to odds ratos of 1.6 to 1.7 would be suffcent to turn the results of women as well as of East and West Germans nto an nsgnfcant one at 24 months after programme start. For men the correspondng factor s two. And for the outcome no UB II recept 24 months after programme start the correspondng numbers are slghtly lower rangng from 1.4 to 1.9. Hence most of the results are relatvely robust to such unobserved factors. The results of the senstvty analyss do not mean that a bas actually exsts but that matchng results are senstve to possble devatons from the assumpton of unconfoundedness and thus one has to be careful n nterpretng the results. Common support Furthermore for propensty score matchng we have to assume that there s a common support whch means that the propensty score should le between zero and one and that the dstrbutons of the propensty score are smlar for treatment and control groups. The propensty score s dsplayed for the samples of men and women and of East and West Germany n Fgure 1 and n Fgure P( X P( X j ) /[1 P( X ) /[1 P( X j )] )] would represent the odds rato of treatment of two matched ndvduals and j wth the same covarate vectors.

17 IABDscussonPaper No. X/ The dstrbuton of the score dffers consderably between treatments and controls. Nevertheless, there s no nterval of the propensty score of the treatments for whch we cannot fnd control ndvduals, whch s suffcent to fnd adequate matches for the treated. Senstvty to choce of the matchng method For the four man groups (East and West Germany, men and women) we estmated the ATT usng dfferent matchng estmators, nearest neghbour oneto-one matchng wthout replacement and nearest neghbour matchng wth replacement usng fve neghbours. Frst, each estmaton was carred out wthout calper. We estmated the 90 th and 99 th percentle of the dfferences between the propensty score of treatments and controls (n absolute terms) n each applcaton. These percentles were then used as 1 st and 2 nd calper leavng out the worst one and ten percent of matched pars. We checked for dfferences n the estmated ATTs 12, 20 and 24 months after programme start. Ths analyss confrmed that our estmaton results are qute stable over the dfferent methods regardng our samples of East and West Germans as well as men and women. In most cases there s a neglgble dfference between the estmated ATTs acheved wth dfferent matchng estmators. And all of them are wthn the 95 percent confdence band of the estmated ATTs that result from nearest neghbour estmator wth fve neghbours and wth replacement. Ths s vald for all outcomes consdered. We present only results based on ths latter estmator. Balancng As we do not condton on all covarates but on the propensty score, we have to check the balancng of the relevant varables. Therefore we appled several measures that gve us nformaton on the balancng. The standardsed absolute bas measures the dstance n the margnal dstrbuton of the covarates. Table 5 dsplays the standard absolute bas as an average over all covarates. Before matchng, the bases for the dfferent groups that we consder range from roughly 10 to 15 percent. After we mplement matchng the bas does not exceed 2.7 percent and for most subgroups t s even below two percent. Besdes the standardsed bas for all covarates we checked the matchng qualty for sngle covarates. Tables 6-9 dsplay the mean of the covarates for treatments, all controls and matched controls for men and women and for East and West Germany. Furthermore, the p-values of a t-test on the hypothess that the mean of a gven covarate s the same for the control and the treatment group are dsplayed for all covarates. The results demonstrate that after matchng there are no sgnfcant dfferences between treatment and control group n any of the varables Average Treatment Effects on the Treated The estmated ATTs for the samples of men and women and East and West Germans are presented n Fgure 3 and Fgure 4 and Table 10. We present the results for the four outcomes regular employment, nether regstered as 16 The results for the other samples for whch we estmated ATTs are avalable on request.

18 IABDscussonPaper No. X/ unemployed nor as a job-seeker, not regstered as unemployed and no UB II recept. The results stem from nearest neghbour matchng wth replacement whch matches fve ndvduals from the control group to a treated ndvdual. Standard errors were computed wth Stata bootstrap procedure 200 replcatons. Note though Abade and Imbens (2006) showed that n nearest neghbourhood matchng applcatons bootstrap standard errors are not vald n general. For judgng the treatment effects t s mportant to keep n mnd that the maxmum duraton of the program s equal to 24 months and thus some of the programme partcpants are stll recevng state support at the end of our observaton wndow. Nevertheless, the actual spell lengths of the start-up subsdy n our sample are frequently far below the maxmum. The medan duraton s about seven months and after roughly 18 months 95 percent of the treated no longer receve the start-up subsdy. Hence, n the last months of our observaton wndow only a very small share of the treated stll partcpate n the programme. Let us frst dscuss brefly the treatment effects on the outcome regular contrbutory employment. Of course the treatment effect on ths outcome s negatve over the entre observaton perod as dsplayed by Fgure 3 and Fgure 4; the prmary am of the Enstegsgeld start-up scheme s to ncrease the partcpants probablty of beng self-employed and not contrbutory employed. If we were to observe a large share of programme partcpants n unsubsdsed contrbutory employment, ths would be unlkely to lead us to the concluson of a postve effect of partcpaton of the busness start-up scheme. 20 months after programme start, the proporton of the treated n contrbutory employment s roughly between nne and 11 percentage ponts lower than for the matched controls. The result s a bt stronger (more negatve) for males and West Germans than for women and East Germans. The dfference between West and East Germany s not surprsng. It s due to the far better performance of the West as opposed to the East German labour market, whch mples hgher job fndng rates for the West German matched controls. 17 Small gender dfferences may be explaned by the dfferent atttudes to rsk takng of males and females. If females are more rsk averse they are lkely to swtch from self-employment nto contrbutory employment. But the effect could also be explaned due to better labour market prospects of the male as compared wth the female controls. We also observe that the effect tends to become stronger (more negatve) as tme passes for most of the groups. Regardng the three other outcome varables all treatment effects are postve. Ths however s partly lnked to the desgn of the evaluated programme. Now turn to the treatment effects on the outcomes nether regstered as unemployed nor as a job-seeker and not regstered as unemployed of programme partcpants compared wth non-partcpants. In the frst few months after programme start we observe a large postve effect for the outcome not regstered as unemployed lyng at around 60 to 70 percentage ponts, rrespectve of gender and regon (see Fgure 3 and Fgure 4). The estmated ATT for the outcome nether regstered as unemployed nor as a job-seeker s lower but stll above 30 percentage ponts. Interpretng these results n the frst 17 Durng our observaton perod, whch ncludes manly the years 2005 and 2006, the unemployment rate n West Germany was between nne and 10 percent. In East Germany nstead t ranged from about 17 to 19 percent (Source: Statstcs Department of the Federal Labour Agency). These numbers refer to regstered unemployment.

19 IABDscussonPaper No. X/ months one should be cautous. Postve values n these months do not ndcate a success as the analysed programme s long and thus partcpants are not regstered as unemployed due to ther actve labour market programme (ALMP) partcpaton. Generally the trends for the effects revewed above are non-monotonc but declne n the long run. By the 20 th month the estmated ATT on the outcome not regstered as unemployed s about 25 to 30 percentage ponts for most of the dfferent partcpant groups as dsplayed n Table 10. The correspondng effect on nether regstered as unemployed nor as a job-seeker s roughly 20 percentage ponts. Hence, whether we regard men or women, East or West Germans, Germans or Foregners the order of magntude of the treatment effect s qute smlar for ths latter outcome. Agan one should keep n mnd that for the bulk of partcpants of the start-up scheme the subsdy has already termnated before the 20 th month after programme start. When we regard the outcome not regstered as unemployed the estmated ATTs dffer more between some treatment groups. For the man analysed groups we observe that the effect s slghtly weaker for female partcpants compared to male partcpants 20 months after programme start (Table 10). For East Germans t s about fve percentage ponts lower than for West Germans. As by that pont n tme nearly none of the partcpants stll receves the subsdy, we conclude that due to the better labour market stuaton n the West, the start-ups also are more successful than n the East. However, the dfferences between the ATTs of East and West Germany are not statstcally sgnfcant as the 95 percent confdence bands n Fgure 4 demonstrate. As a fnal and crucal part of our evaluaton exercse we present the estmated ATTs for the outcome not recevng UB II. The results support our prevous concluson that there s evdence pontng to a sgnfcant postve effect of partcpaton n the busness start-up programme compared to non-partcpaton. At the begnnng of the evaluaton perod we observe that the ATT of not recevng UB II s approxmately zero for all groups of partcpants. Ths s dsplayed for the samples of men and women and East and West Germany n Fgure 3 and Fgure 4. Hence, durng the frst few months of the start-up the share of partcpants who are not needy s hardly changed by the subsdy. Yet, slowly treatment rases ths share. By the end of our observatons wndow, 20 months up to 25 months after programme start, the share of partcpants who do not receve UB II s consderably hgher than that of the matched controls. When we regard men or West Germans, the dfference between treated and matched controls s more than 15 percentage ponts (see Table 10). For women and East Germans the correspondng number s 11 percentage ponts. Our fndngs ndcate that due to partcpaton some partcpants of the Enstegsgeld start-up scheme become self-relant relatvely fast and do not requre fnancal support n terms of UB II. These results together wth the ones for the outcome nether regstered as unemployed nor as a job-seeker clearly suggest that the start-up subsdy s effectve n terms of ntegratng a consderable share of partcpants nto the labour market and n turn reducng ther beneft dependency. So far we have learned that partcpaton n the Enstegsgeld start-up scheme produces sgnfcant gans both for West and East German partcpants as well as for male and female partcpants. In the analyss however we consder a number of other soco-demographc groups (see Table 10). These are the 25 to 45 year olds, people wth secondary or hgher educaton, Germans versus foregners and people who worked n unsubsdsed contrbutory employment n the last 32

20 IABDscussonPaper No. X/ months compared wth those who dd not fulfl ths crteron. The estmated ATTs for the dfferent outcomes are relatvely smlar n order of magntude among these dfferent treatment groups (Table 10). Thus, we do not observe much effect heterogenety. At the same tme t s mportant to keep n mnd that the sample whch was avalable for the analyss s qute small and does not allow us to conduct a more detaled analyss wth more homogeneous groups. An analyss nvolvng more partcpants of the programme that allows studyng effect heterogenety n more detal and over a longer perod of tme s a topc for further research. 7. Summary and Conclusons Ths paper estmated the treatment effects on treated of a new start-up subsdy, Enstegsgeld for needy unemployed people n Germany. The start-up subsdy was ntroduced together wth a new means-tested beneft system at the start of the year It s pad on top of the means-tested beneft, provded that the household remans needy. We analysed for a sample of needy unemployed people, who entered the programme from February to Aprl 2005, whether the partcpaton mproved ther labour market performance and lead them out of means-tested beneft recept. The data stem from dfferent admnstratve records, whch do not provde any nformaton about unsubsdsed selfemployment. Therefore, we studed n partcular whether the programme made t more lkely for partcpants not to receve UB II, or nether to be regstered as unemployed nor as job-seekers. Postve values of these ndcators pont to a successful partcpaton. Our results from nearest neghbour matchng wth replacement and fve neghbours mply that the programme s effectve. By the end of our observaton wndow, about two years after programme start, the estmated ATTs suggest that treatment rased the share of partcpants who do not receve UB II and who are regstered nether as unemployed nor as job-seekers. For the frst of these two outcomes the effect s, dependng on the sample, of an order of magntude of about 11 to 16 percentage ponts, whle for the second t s roughly 20 percentage ponts. Our results do not pont to large dfferences between the ATTs of dfferent groups of partcpants. However, East Germans and women tend to beneft less from the start-up subsdy than West Germans and males as far as we are concerned wth the treatment effect on the dependency on means-tested benefts. That the treatment effect s lower n the East than the West s hardly surprsng. Snce the East German economy s stll less prosperous than the West German one, the success rate of the start-ups tends to be hgher n the West. Baumgartner and Calendo (2007) estmated n a smlar study the ATTs of two start-up programmes, whch were not focused on needy people but rather on unemployment nsurance beneft recpents. The results of one or ther outcome varables not unemployed can be compared to ours; the treatment effects on the treated are of a smlar order of magntude for the Enstegsgeld start-up scheme that we analysed and the brdgng allowance and the other start-up subsdy that they analysed. Baumgartner and Calendo (2007) also had data on another outcome Employed or Self-Employed from a survey that was conducted wth the treated and controls and found that both programmes had rased the share of employed people for the partcpant consderably. Even though we do not have such nformaton, the smlartes of the treatment effects