Abstract

We study the labor market outcomes of a deregulation reform in Germany that removedlicensing requirements to become self-employed in some occupations. Using longitudinalsocial security data, we implement a matched difference-in-differences design withentropy balancing to account for observable characteristics and unobserved individualheterogeneity. The reform tripled the number of businesses within ten years and led toslower earnings growth and higher unemployment for incumbent workers in deregulatedoccupations. However, the reform effect seems rather small, which we attribute to therelatively low competitiveness of new businesses. Supporting this view, the reform did notlead to overall employment growth.