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Unemployment, Entrepreneurship and Firm Outcomes

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  • João Alfredo Galindo da Fonseca

    (Université de Montréal, CIREQ)

Abstract

Are there differences between firms created by unemployed individuals relative to otherwise identical employed individuals? The answer is crucial for understanding the impact of policies that promote entrepreneurship among the unemployed. I develop an equilibrium model of entrepreneurship. Different outside options imply the unemployed are more likely to start firms, but these are smaller and fail more often. I verify these implications using a new administrative Canadian matched owner-employer-employee dataset. I use firm closures to identify random assignments of individuals to unemployment. I find that subsidies for firms started by the unemployed induce a reallocation of resources to low-productivity firms. The mechanism is further tested empirically by verifying that wage workers are more responsive to wages than the unemployed in their decision to start a firm.

Suggested Citation

  • João Alfredo Galindo da Fonseca, 2019. "Unemployment, Entrepreneurship and Firm Outcomes," Cahiers de recherche 04-2019, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  • Handle: RePEc:mtl:montec:04-2019
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    Cited by:

    1. Joao Galindo da Fonseca & Charles Berubé, 2020. "Spouses, Children and Entrepreneurship," Cahiers de recherche 05-2020, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    2. Karaivanov, Alexander & Yindok, Tenzin, 2022. "Involuntary entrepreneurship – Evidence from Thai urban data," World Development, Elsevier, vol. 149(C).
    3. Sohail, Faisal, 2021. "From employee to entrepreneur: Learning, employer size, and spinout dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    4. Louis-Philippe Beland & Oluwatobi Fakorede & Derek Mikola, 2020. "Short-Term Effect of COVID-19 on Self-Employed Workers in Canada," Canadian Public Policy, University of Toronto Press, vol. 46(S1), pages 66-81, July.
    5. Niklas Engbom, 2019. "Firm and Worker Dynamics in an Aging Labor Market," Working Papers 756, Federal Reserve Bank of Minneapolis.

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    More about this item

    Keywords

    firm dynamics; unemployment; macroeconomics; labor markets;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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