Working Paper: CEPR ID: DP10294
Authors: Johan Hombert; Antoinette S. Schoar; David Sraer; David Thesmar
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.
Keywords: crowding out; entrepreneurship; unemployment
JEL Codes: L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| French reform (P41) | monthly firm creation (L26) |
| French reform (P41) | likelihood of new firms intending to hire (L26) |
| entry of new firms (L26) | employment growth among small incumbents (L25) |
| monthly firm creation (L26) | aggregate productivity (E23) |
| French reform (P41) | overall economic impact (F69) |