CPR Working Paper Series No. 11

Cash Constraints and Business Start-Ups: Deutschmarks Versus Dollars

Douglas Holtz-Eakin and Harvey Rosen

June 1999

Abstract:  In this paper we analyze microdata to explore differences in the rates at which American and German workers leave their salaried jobs to become self-employed. We document that the rate of self-employment is lower in Germany than in the U.S., and the rate of transition from wage-earning to self-employment is lower as well. We find evidence that German workers face liquidity constraints that are more severe than those of their American counterparts. Further, the difference in transition rates cannot be attributed to observable differences between German and American workers.

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