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Can Unemployment Insurance Spur Entrepreneurial Activity? Evidence from France
Author(s) -
HOMBERT JOHAN,
SCHOAR ANTOINETTE,
SRAER DAVID,
THESMAR DAVID
Publication year - 2020
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12880
Subject(s) - unemployment , productivity , exploit , labour economics , entrepreneurship , job creation , business , quality (philosophy) , crowding out , barriers to entry , scale (ratio) , downside risk , economics , demographic economics , monetary economics , economic growth , finance , industrial organization , portfolio , philosophy , computer security , epistemology , computer science , market structure , physics , quantum mechanics
We evaluate the effect of downside insurance on self‐employment. We exploit a large‐scale reform of French unemployment benefits that insured unemployed workers starting businesses. The reform significantly increased firm creation without decreasing the quality of new entrants. Firms started postreform were initially smaller, but their employment growth, productivity, and survival rates are similar to those prereform. New entrepreneurs' characteristics and expectations are also similar. Finally, jobs created by new entrants crowd out employment in incumbent firms almost one‐for‐one, but have a higher productivity than incumbents. These results highlight the benefits of encouraging experimentation by lowering barriers to entry.