The social safety net provides financial security for millions of Americans, yet few studies have explored its influence on firm formation. In three papers, I test whether public insurance programs affect business ownership. I examine three large-scale public policies: the State Child Health Insurance Program (SCHIP); an expansion of the Supplemental Nutrition Assistance Program (SNAP, formerly know as Food Stamps); and state responses to welfare reform that restricted federal benefits for immigrants. I use a variety of identification strategies to isolate the causal effects of these policies, including difference-in-differences (DID), regression discontinuity (RD) and two generalized falsification procedures that are applicable to a wide range of econometric settings. I show that these programs were largely effective in their stated goals: SCHIP reduced the number of uninsured children by 29% in general and 21% among immigrants, and households newly-eligible for SNAP were 3-5 percentage points more likely to enroll. I also show that these policies had large effects on entrepreneurship: SCHIP increased self-employment by 23% on average (20% for immigrant households) and SNAP increased business ownership by 20%. The results are driven by higher birth rates for firms rather than greater survival, and the new ventures tend to be high-quality firms, with larger marginal effects for incorporated business ownership and an increase in the share of household income derived from self-employment. I also document large increases in labor supply, on the order of 1.1 million (SNAP) to 8.8 million (SCHIP) full-time workers. The central mechanism is a reduction in the riskiness of self-employment rather than a relaxation of credit constraints as a result of receiving transfers, with larger effects for newly-eligible non-enrollees. I find no evidence that observable characteristics differ between treatment and control groups using the falsification tests, and Monte Carlo simulations show a sharp reduction in Type 1 Error and bias relative to DID and RD. To the extent that entrepreneurs contribute to innovation, job creation or economic growth, these findings strongly suggest that public insurance programs have spillover benefits on the supply of firms.
Olds, Gareth E. A.,
"Entrepreneurship and the Social Safety Net"
(2014).
Economics Theses and Dissertations.
Brown Digital Repository. Brown University Library.
https://doi.org/10.7301/Z0S180VS
