Regional unemployment structure and new firm formation

Does regional unemployment increase or rather decrease entrepreneurial activity? Although this question has been hotly debated among researchers for decades the answers yielded so far are ambiguous and inconclusive. The paper proposes an innovative approach that takes not only interregional differences in unemployment rates, but also in unemployment duration and the human capital of the unemployed—i.e. in the structure of regional unemployment—into account. Both, the skill structure of the unemployed and the share of long-term unemployment are found to have an important impact on regional start-up activity. Moreover, the impact of unemployment structure on new firm formation is found to vary with the knowledge-intensity of the start-ups.