Entrepreneurship and Market Size: The Case of Young College Graduates in Italy

21 Pages Posted: 2 Aug 2010

See all articles by Sabrina Lucia Di Addario

Sabrina Lucia Di Addario

Bank of Italy

Daniela Vuri

University of Rome Tor Vergata; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Abstract

We analyze empirically the effects of urban agglomeration on Italian college graduatesメ work possibilities as entrepreneurs three years after graduation. We find that each 100,000 inhabitant-increase in the size of the individualメs province of work reduces the chances of being an entrepreneur by 0.2-0.3 percent. This result holds after controlling for regional fixed effects and is robust to instrumenting urbanization. Provinceメs competition, urban amenities and dis-amenities, cost of labor, earning differentials between employees and self-employed workers, unemployment rates and value added per capita account for 40 percent of the negative urbanization penalty. Our result cannot be explained by the presence of negative large-city differentials in returns to education either. In fact, as long as they succeed in entering the largest markets, young entrepreneurs are able to reap-off the benefits of urbanization externalities: every 100,000-inhabitant increase in the province's population raises entrepreneurs' net monthly income by 0.2-0.3 percent.

Keywords: labor market transitions, urbanization

JEL Classification: R12, J24, J21

Suggested Citation

Di Addario, Sabrina Lucia and Vuri, Daniela, Entrepreneurship and Market Size: The Case of Young College Graduates in Italy. IZA Discussion Paper No. 5098, Available at SSRN: https://ssrn.com/abstract=1651743 or http://dx.doi.org/10.2139/ssrn.1651743

Sabrina Lucia Di Addario (Contact Author)

Bank of Italy ( email )

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Daniela Vuri

University of Rome Tor Vergata ( email )

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IZA Institute of Labor Economics

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Munich, DE-81679
Germany

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