Can Unemployment Insurance Spur Entrepreneurial Activity? Evidence from France

Abstract

Since 2003, the French unemployment insurance system provides downside insurance to eligible unemployed workers who decide to start a business. We evaluate how this policy change affects entry into self-employment. The reform significantly increases firm creation without worsening the quality of new entrants. Firms started post-reform are initially smaller, but employment growth, productivity, and survival rates are similar to entrants pre-reform. New entrepreneurs are also similar in characteristics and expectations. Finally, jobs created by new entrants crowd-out employment in incumbent firms almost one-for-one, but have higher productivity and value-added than the displaced incumbents. These results highlight the benefits of allowing experimentation by lowering barriers to self-employment.

Keywords: Entrepreneurship; Unemployment Insurance; Crowding Out