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Can Unemployment Insurance Spur Entrepreneurial Activity?

Listed author(s):
  • Johan Hombert
  • Antoinette Schoar
  • David Sraer
  • David Thesmar

We study a large-scale French reform that provided generous downside insurance for unemployed individuals starting a business. We study whether this reform affects the composition of people who are drawn into entrepreneurship. New firms started in response to the reform are, on average, smaller, but have similar growth expectations and education levels compared to start-ups before the reform. They are also as likely to survive or to hire. In aggregate, the effect of the reform on employment is largely offset by large crowd-out effects. However, because new firms are more productive, the reform has the impact of raising aggregate productivity. These results suggest that the dispersion of entrepreneurial abilities is small in the data, so that the facilitation of entry leads to sizable Schumpeterian dynamics at the firm-level.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20717.

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Date of creation: Nov 2014
Handle: RePEc:nbr:nberwo:20717
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  1. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
  2. Nicola Cetorelli & Philip E. Strahan, 2006. "Finance as a Barrier to Entry: Bank Competition and Industry Structure in Local U.S. Markets," Journal of Finance, American Finance Association, vol. 61(1), pages 437-461, 02.
  3. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
  4. Martin C. Schmalz & David A. Sraer & David Thesmar, 2013. "Housing Collateral and Entrepreneurship," NBER Working Papers 19680, National Bureau of Economic Research, Inc.
  5. Dominique Goux & Eric Maurin & Barbara Petrongolo, 2014. "Worktime Regulations and Spousal Labor Supply," American Economic Review, American Economic Association, vol. 104(1), pages 252-276, January.
  6. Adelino, Manuel & Schoar, Antoinette & Severino, Felipe, 2015. "House prices, collateral, and self-employment," Journal of Financial Economics, Elsevier, vol. 117(2), pages 288-306.
  7. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-748, August.
  8. Marianne Bertrand & Antoinette Schoar & David Thesmar, 2007. "Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985," Journal of Finance, American Finance Association, vol. 62(2), pages 597-628, 04.
  9. Card, David & Levine, Phillip B., 2000. "Extended benefits and the duration of UI spells: evidence from the New Jersey extended benefit program," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 107-138, October.
  10. Kerr, William R. & Nanda, Ramana, 2009. "Democratizing entry: Banking deregulations, financing constraints, and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 94(1), pages 124-149, October.
  11. Suresh de Mel & David McKenzie & Christopher Woodruff, 2009. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 423-423.
  12. Lee Branstetter & Francisco Lima & Lowell J. Taylor & Ana Venâncio, 2014. "Do Entry Regulations Deter Entrepreneurship and Job Creation? Evidence from Recent Reforms in Portugal," Economic Journal, Royal Economic Society, vol. 124(577), pages 805-832, 06.
  13. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2013. "Who Creates Jobs? Small versus Large versus Young," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 347-361, May.
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