Unemployment and Firm Entry and Exit: An Update on a Controversial Relationship

The present study explores the relationship between unemployment and subsequent firm entry and exit for 103 Italian provinces for the period 1997–2003. Two models are estimated. The first model concentrates on unemployed individuals starting or closing a business in the province in which they live. The second model incorporate cross-border effects by taking into account possible start-ups by unemployed individuals from adjacent provinces. Findings show that a positive effect of unemployment on net entry is not due to a positive ‘push’ effect on entry, but rather to a negative effect of unemployment on firm exit. This indicates a lack of dynamics in the Italian labour market.