Does Unemployment Insurance Change the Selection into Entrepreneurship?

The French Reform of 2003, documented in Hombert et al. (2014), led to 25 percent increase in supply of newly created firms. The question we investigate in this chapter is whether it led to a significant reduction in the potential for long-term success of new ventures. We proceed in two steps. First, using the 1994 cohort, we show that some entrepreneurial and project characteristics, that we can measure using a large-scale survey, significantly predict the probability that newly founded firms succeed in the long run. We show that firms started by entrepreneurs that plans on growing, have already had entrepreneurial experience, or are motivated by new ideas, are significantly more likely to employ at least 50 persons after 12 years. We then use this relationship to see if the success potential of startups was significantly deteriorated by the 2003 reform. We find that it was not.