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Unemployment Insurance as a Subsidy to Risky Firms

Bernardus Van Doornik, Dimas Fazio, David Schoenherr and Janis Skrastins
Additional contact information
David Schoenherr: Princeton University
Janis Skrastins: Washington University in St. Louis

Working Papers from Princeton University. Economics 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.

Keywords: unemployment insurance; labor supply; firm risk; entrepreneurship (search for similar items in EconPapers)
JEL-codes: J21 J22 J46 J65 K31 (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-ban, nep-bec, nep-ias, nep-lab, nep-law and nep-sea
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Unemployment Insurance as a Subsidy to Risky Firms (2022) Downloads
Working Paper: Unemployment Insurance as a Subsidy to Risky Firms (2020) Downloads
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