'Nudging' the Youth into (Self-)Employment

The impact of welfare state arrangements on the individuals’ behaviour has been subject of extensive scholarly debate. While we have some knowledge of how welfare policies affect the job search behaviour of unemployed persons (Yegidis et al. 2015), less attention has been paid to the relationship between welfare state arrangements and entrepreneurship. Building on the varieties of capitalism approach (Hall and Soskice 2001), we expect that entrepreneurial behaviour is more pronounced in liberal market economies than in coordinated market economies with encompassing welfare states. The expectation becomes less clear, however, when it comes to the relationship between welfare state arrangements and production regime, and entrepreneurial behaviour. Furthermore, we can observe that conservatively and social-democratically coordinated economies are more successful in matters of entrepreneurship policies. Focussing on the younger generation in the labour market, we argue that activating mechanisms within encompassing welfare states of the conservatively and the social-democratically coordinated variety of capitalism pushes, or “nudges”, young people into self-employment. To test this argument empirically, we use data comparing public expenditures for activating labour market measures, such as training or direct-job creation schemes, to youth unemployment and youth entrepreneurship rates in different types of welfare regimes within the OECD-world. While our preliminary findings for the labour market outcomes are mixed, the first results comparing labour market outputs show that countries of the coordinated variety of capitalism do indeed invest more in labour market schemes that tend to increase the incentives for behavioural change and ultimately “nudge” especially young people into employment and self-employment. This is seen by comparing the increasing opportunity costs of unemployment to countries with liberal capitalism types of economy. To that effect, we argue that “nudging” labour market policies might indeed be a policy instrument leading to behavioural change and constituting a possible way out of (youth) unemployment.