Entrepreneurship, Labor Market Mobility and the Role of Entrepreneurial Insurance, Alexandre Gaillard (Toulouse School of Economics), Sumudu Kankanamge (Toulouse School of Economics).
This paper introduces a quantitative general equilibrium model with risky entrepreneur- ship and search frictions designed to endogenously match the magnitude of the occupa- tional flows between entrepreneurship, paid-employment and unemployment. The model also accounts for the general shape of these flows as well as key entrepreneurial and labor market features in the US, based mostly on micro CPS and SCF data. We use this model to examine the mitigation of the bias created by most current unemployment insurance programs in favor of paid-employment and at the expense of self-employment. We show that an entrepreneurial insurance program can significantly reduce this bias and we de- compose the elements that most contribute to this reduction. Comparing this policy to an entrepreneurial subsidy, we find that entrepreneurial insurance selects more talented, wealthier, faster growing and longer lasting entrepreneurs from the unemployment pool. Finally, we find that UI system attributes have a significant impact on entrepreneurship, which might be an important additional concern for optimal UI design.
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