Download This PaperSocial Insurance and Entrepreneurship: The Effect of Unemployment Benefits on New-Business Formation
Strategic Entrepreneurship Journal, Forthcoming
56 Pages Posted: 24 Jun 2019 Last revised: 27 Mar 2024
Date Written: June 13, 2019
Abstract
This paper studies the impacts of social insurance on the decisions of unemployed individuals to start businesses. Exploiting staggered changes in benefit generosity across U.S. states and over time, I find that higher unemployment insurance (UI) benefits both lower the probability that an unemployed person will become self-employed, and also extend the length of time that passes before they make such a transition. The negative effects of UI benefits are concentrated on the formation of unincorporated businesses. Unincorporated businesses created by unemployed people in higher-benefit state-periods tend to be more successful, as measured by profit and survival rate, suggesting that higher benefits mainly screen out the entry of less productive firms. The negative effects are smaller during non-recession periods and in states that offer a Self-Employment Assistance program.
Keywords: Entrepreneurship, unemployed entrepreneurs, unemployment benefits, unincorporated business, Self-Employment Assistance Program
JEL Classification: L26, J65, H52, E32
Suggested Citation: Suggested Citation