Business Entry Simplification (Salaried-to-Entrepreneur Shift)
Observational StudyReview
Simplifying business startup registration is often intended to formalize existing informal businesses, but fails if pre-existing informal firms lack the productivity to benefit from registration.
Picture this
Lowering the entry fee for a marathon doesn't convince people already running in the woods to join the official race; instead, it encourages spectators on the sidelines to start running for the first time.
What the evidence says
Startup simplification increased the total number of registered businesses by encouraging former formal salaried workers to launch new enterprises, but had zero effect on the registration likelihood of pre-existing informal firms.
- Who was studied
- Business owners and wage earners across municipalities in Mexico undergoing SARE licensing reform (Bruhn, 2011; Kaplan et al., 2011).
- How
- Quasi-experimental roll-out evaluation of simplified municipal licensing reforms.
What to do
Pair startup registration simplification reforms with targeted productivity-enhancing services to effectively convert established informal firms.
From the source
"The results suggest that the reform increased the number of registered companies. This increase resulted from former salaried workers deciding to start their businesses. After the reform, pre-existing informal business owners were no more likely to register their companies."
JOI_Brazil_Evidence_in_Labor_Market_Policies_and_Implications_for.pdf