Can Unemployment Insurance Spur Entrepreneurial Activity? Evidence from France

A study of the effects from a large-scale reform of French unemployment benefits that extended coverage to unemployed workers starting businesses. The reform significantly increased new firm creation. Jobs created by new entrants crowded out employment in incumbent firms nearly one-for-one, except the new jobs had higher productivity, indicating an overall increase in productivity by converting jobs from incumbents to entrepreneurship. The results highlight the benefits of lowering barriers to entrepreneurship by insuring risk.