Unemployment Insurance Generosity and Self-Employment

Alexandre Gaillard () and Sumudu Kankanamge ()
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Alexandre Gaillard: Brown University
Sumudu Kankanamge: UM - Le Mans Université, GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université, TEPP - Théorie et évaluation des politiques publiques - CNRS - Centre National de la Recherche Scientifique, IRA - Institut du Risque et de l'Assurance, Le Mans

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Abstract: We show that more generous unemployment insurance (UI) reduces self-employment, with an elasticity twice as negative as the job search disincentive. This results in a sizable decline in aggregate self-employment. Using a structural model of the U.S. labor market, we trace this negative response to two features of UI policy: the exclusion of the self-employed from UI coverage and job search monitoring for UI recipients. The model predicts that neutralizing monitoring requirements and allowing the self-employed to gain UI coverage over time dampen the negative impact of increased UI generosity on self-employment, but also reduce the employment rate.

Keywords: Self-employment; Unemployment Insurance; Labor Market Mobility; Monitoring (search for similar items in EconPapers)
Date: 2025-04-23
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