ABSTRACT
We evaluate the effect of downside insurance on selfâemployment. We exploit a large scale reform of French unemployment benefits which insured unemployed workers starting businesses. The reform significantly increased firm creation without decreasing the quality of new entrants. Firms started postâreform were initially smaller, but their employment growth, productivity, and survival rates are similar to those preâreform. New entrepreneurs' characteristics and expectations are also similar. Finally, jobs created by new entrants crowd out employment in incumbent firms almost oneâforâone, but have a higher productivity than incumbents. These results highlight the benefits of encouraging experimentation by lowering barriers to entry.
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