Startup-friendly Unemployment Benefits

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French unemployment law supports entrepreneurs by allowing them to continue receiving unemployment benefits during the initial years of their business.
What are the main aims and objectives?
The main aims Startup-friendly unemployment benefits are to reduce the barriers and disincentives for unemployed individuals to start their own businesses and to encourage entrepreneurship. By allowing founders to draw unemployment benefits during the first three years of their business, France aims to increase its rate of entrepreneurship and boost the country's economy. One of the deterrents to entrepreneurs is the fear of giving up an existing job for a more uncertain path. Unemployment benefits may provide a safety net, but in many cases, these are withdrawn as soon as an individual starts working. In France, the benefit system was changed to grant entrepreneurs access to unemployment benefits for the first three years of their business, as well as in the event of startup failure. 
How does the program work?

For two full years after quitting their work French resident can dispose of 60% of their previous salary up to a maximum of 30k/year. This gives sufficient freedom and time for French resident to get started on their startups. 

Unemployment insurance had generally been seen in France as a deterrent to entrepreneurship as individuals without jobs ceased to be eligible for it once they launched a business. In response to this, the French Ministry of Labor enacted reforms in 2001 that allowed founders to continue drawing upon unemployment benefits for the first three years of their business and to remain eligible for these benefits in the event the business does not succeed.  

Reforms announced in 2018 extended this policy by giving workers who resign from employment in order to start a company the same level of access to unemployment benefits as those who have been made redundant or have been long-term unemployed. Unemployment insurance was also extended to entrepreneurs by giving the self-employed the right to an 800 euro per month benefit for six months.  

What is the overall cost?
The initial 2001 reforms cost roughly €100 million annually. The reforms announced in 2018 were estimated to cost a further €180 million, although it is worth noting they were part of a broader package that brought the overall cost to the taxpayer down.  
How was it implemented?
In France, the unemployment law for startups is supported by the ACRE scheme (Aide Créateurs ou Repreneurs d'Entreprise), which provides assistance to all new business startups, not just for unemployed persons. While the general unemployment insurance scheme in France is a negotiated agreement between employers and employees that is then approved by the government, the ACRE scheme specifically focuses on supporting entrepreneurs and startup founders. This assistance can be in the form of financial aid or reduced social contributions for a certain period, allowing startups to establish themselves and potentially create new job opportunities. 
What impact has been measured?

Academic research conducted using data from 1999 to 2005 found that the policy changes boosted the French economy by €350 million per year, equating to rate of return of €3.50 for each euro spent by the government. Furthermore, the research found that the reforms had directly contributed to at least 12,000 additional jobs each year.

What lessons can be learned?

The results of this policy indicate two things. Firstly, it demonstrates that welfare programs can damage entrepreneurial incentives by dissuading people from risking their loss of income to start a business. However, the crucial lesson is that instead of lowering welfare overall, policy makers should seek to expand existing benefits to entrepreneurs where possible. The broader lesson for policymakers is that whilst entrepreneurship is inevitably risky, reducing the downside does encourage prospective entrepreneurs to start up. 

CURATED BY

Siddharth Bannerjee

Researcher, Digital Startups
Nesta
United Kingdom