Discussion Paper Details

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Title: Can Unemployment Insurance Spur Entrepreneurial Activity?

Author(s): Johan Hombert, Antoinette S Schoar, David Sraer and David Thesmar

Publication Date: December 2014

Keyword(s): Crowding out, Entrepreneurship and Unemployment

Programme Area(s): Financial Economics and Labour Economics

Abstract: 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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Bibliographic Reference

Hombert, J, Schoar, A, Sraer, D and Thesmar, D. 2014. 'Can Unemployment Insurance Spur Entrepreneurial Activity?'. London, Centre for Economic Policy Research.