Labor Market Regulation and European Venture Capital Investment

European Productivity Conference, Espoo, Finland

Abstract

Venture capital investment is a significant factor in explaining the entrepreneurial and innovative successes of the U.S. over the past three decades. VC investment in most European regions, however, has been much slower to develop. This paper identifies the institutional factors and government policies that have inhibited this funding historically, discusses recent advances made in several European regions to attract domestic and foreign investors, and documents current investment levels. Specific attention is devoted to labor market regulations and how government choices between employment protection regulations and unemployment insurance benefits affect VC investment levels and entrepreneurship.