Can Unemployment Insurance Spur Entrepreneurial Activity? Evidence From France∗

We study a large-scale French reform that provided generous downside insurance for unem-ployed 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 pro-ductivity. 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. ∗This is the substantially revised version of a paper previously titled “Should the Government Make it Safer to Start a Business? Evidence From a French Reform”. We thank participants at many conferences and seminars for comments and suggestions. In particular, we are indebted to Ashwini Agrawal, Steve Davis, Guy Laroque, David Matsa, Toby Moskowitz, Marina Niessner, and Elena Simintzi for their valuable insights. The data used in this paper is confidential but not the authors ’ exclusive access