Unemployment Insurance as a Subsidy to Risky Firms

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

No 523, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: We document that a more generous unemployment insurance (UI) system shifts labor supply from safer to riskier firms and reduces compensating wage differentials 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 identification of the results. Altogether, our results suggest that UI provides a transfer system from safe to risky firms.

Date: 2020-07
New Economics Papers: this item is included in nep-bec and nep-ias
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Unemployment Insurance as a Subsidy to Risky Firms (2022)
Working Paper: Unemployment Insurance as a Subsidy to Risky Firms (2022)
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