Unemployment Insurance as a Subsidy to Risky Firms

Bernardus Van Doornik, Dimas Fazio, David Schoenherr and Janis Skrastins

The Review of Financial Studies, 2022, vol. 35, issue 12, 5535-5595

Abstract: We document that a more generous unemployment insurance (UI) system shifts labor supply from safer to riskier firms and reduces the compensating wage differentials that risky firms need to pay. Consequently, a more generous UI system increases risky firms’ value and fosters entrepreneurship by reducing new firms’ labor costs. Exploiting a UI reform in Brazil that affects only part of the workforce allows us to compare labor supply for workers with different degrees of UI protection within the same firm, sharpening the identification of the results. Altogether, our results suggest that UI provides a transfer system from safe to risky firms.

JEL-codes: J21 J22 J46 J65 K31 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Working Paper: Unemployment Insurance as a Subsidy to Risky Firms (2022)
Working Paper: Unemployment Insurance as a Subsidy to Risky Firms (2020)
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