« Entrepreneurship, Unemployment and Insurance Effect [NEW VERSION SOON] », Alexandre Gaillard (TSE), Sumudu Kankanamge (TSE).
In the spirit of recent programs implemented in the US and France, this paper evaluates the effects of a specific policy providing insurance to unemployed individuals entering entrepreneurship by extending their current unemployment insurance rights to their new activity. We use a general equilibrium model with occupational choices, labor market frictions and risky entrepreneurship to study the implications of such a reform for the US economy. We discipline our model to the data using the CPS and SCF and indirectly infer entrepreneurial abilities using the non-linear transitions from worker to entrepreneur by earning quantiles. The reform is shown to resorb the distortion generated by the current unemployment insurance system that favours the search for employment rather than self-employment. This leads to a 10% increase in the fraction of unemployed individuals starting businesses, however, we also find that the unemployment rate is roughly unchanged. When compared to a start-up subsidy, which is the most commonly used instrument to foster entrepreneurship, new entrepreneurs under the entrepreneurial insurance policy are shown to be more talented, surviving longer and growing faster.
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