The Impact of Workers’ Compensation Laws on Entrepreneurial Activity

Government policy that aims to stimulate business activity often overlooks its indirect impacts on entrepreneurial entry. In particular, the role of free time, especially in concert with liquidity con-straints, remains an underexplored factor. In this paper, we exploit two exogenous shocks to worker...

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Detalles Bibliográficos
Autores: Khurana, Indu, Lee, Daniel, Castro, Julio de
Tipo de recurso: artículo
Fecha de publicación:2026
País:España
Institución:IE
Repositorio:Repositorio IE
OAI Identifier:oai:dnet:ierepository::caeab39673c6195268aaeb4e159e0e49
Acceso en línea:https://hdl.handle.net/20.500.14417/4299
Access Level:acceso abierto
Palabra clave:53 Ciencias Económicas
ODS 8 - Trabajo decente y crecimiento económico
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spelling The Impact of Workers’ Compensation Laws on Entrepreneurial ActivityKhurana, InduLee, DanielCastro, Julio de53 Ciencias EconómicasODS 8 - Trabajo decente y crecimiento económicoGovernment policy that aims to stimulate business activity often overlooks its indirect impacts on entrepreneurial entry. In particular, the role of free time, especially in concert with liquidity con-straints, remains an underexplored factor. In this paper, we exploit two exogenous shocks to workers’ free time to furnish plausibly causal effects on entrepreneurial activity: (random) injury and the 2011 amendments to the Illinois workers’ compensation laws. Utilizing a two-way fixed effects estimation, we find that as workers’ compensation becomes less generous, i.e., by limiting both financial resources and an employee’s time away from work, entrepreneurial activity within a specific geographical region is significantly reduced. Thus, we provide evidence of an unin-tended and negative impact on entrepreneurial activity caused by an indirect policy change. Fur-ther, this result unduly affects the recently injured or otherwise disabled. Our results are robust to alternative specifications and data sources, suggesting an important incidence of compensa-tory insurance regulation on entrepreneurial activity and, as a result, important considerations for future policymaking. Workers’ compensation is a state-level program that provides replacement wages to workers in-jured on the job. In 2011, amendments to Illinois’ workers’ compensation laws made this pro-gram less generous in terms of both financial benefits and time out of work. We study the impact of these amendments on entrepreneurial activity. We find that less generous workers’ compensa-tion has a large adverse effect on entrepreneurial activity because it constrains two important factors required for experimentation with entrepreneurship: financial resources and time. Our results hold up to several statistical models and controls, including local innovative and high-tech firms, as well as alternative datasets. Our findings yield important insights for policymakers in other states drafting such regulations and for researchers studying the incidence of such poli-cies.Funding for this project comes from Ministerio de Ciencia, Innovación y Universidades, convo-catoria “Generación del Conocimiento” de 2023. PID2023-148894NB-I00.YesIn processWileyMinisterio de Ciencia, Innovación y Universidadeshttps://ror.org/02jjdwm752026info:eu-repo/semantics/articleapplication/pdfapplication/pdfhttps://hdl.handle.net/20.500.14417/4299reponame:Repositorio IEinstname:IEInglésIE Business SchoolPID2023-148894NB-I00IE UniversityEntrepreneurshipAttribution 4.0 Internationalhttp://creativecommons.org/licenses/by/4.0/info:eu-repo/semantics/openAccessoai:dnet:ierepository::caeab39673c6195268aaeb4e159e0e492026-06-15T12:40:57Z
dc.title.none.fl_str_mv The Impact of Workers’ Compensation Laws on Entrepreneurial Activity
title The Impact of Workers’ Compensation Laws on Entrepreneurial Activity
spellingShingle The Impact of Workers’ Compensation Laws on Entrepreneurial Activity
Khurana, Indu
53 Ciencias Económicas
ODS 8 - Trabajo decente y crecimiento económico
title_short The Impact of Workers’ Compensation Laws on Entrepreneurial Activity
title_full The Impact of Workers’ Compensation Laws on Entrepreneurial Activity
title_fullStr The Impact of Workers’ Compensation Laws on Entrepreneurial Activity
title_full_unstemmed The Impact of Workers’ Compensation Laws on Entrepreneurial Activity
title_sort The Impact of Workers’ Compensation Laws on Entrepreneurial Activity
dc.creator.none.fl_str_mv Khurana, Indu
Lee, Daniel
Castro, Julio de
author Khurana, Indu
author_facet Khurana, Indu
Lee, Daniel
Castro, Julio de
author_role author
author2 Lee, Daniel
Castro, Julio de
author2_role author
author
dc.contributor.none.fl_str_mv Ministerio de Ciencia, Innovación y Universidades
https://ror.org/02jjdwm75
dc.subject.none.fl_str_mv 53 Ciencias Económicas
ODS 8 - Trabajo decente y crecimiento económico
topic 53 Ciencias Económicas
ODS 8 - Trabajo decente y crecimiento económico
description Government policy that aims to stimulate business activity often overlooks its indirect impacts on entrepreneurial entry. In particular, the role of free time, especially in concert with liquidity con-straints, remains an underexplored factor. In this paper, we exploit two exogenous shocks to workers’ free time to furnish plausibly causal effects on entrepreneurial activity: (random) injury and the 2011 amendments to the Illinois workers’ compensation laws. Utilizing a two-way fixed effects estimation, we find that as workers’ compensation becomes less generous, i.e., by limiting both financial resources and an employee’s time away from work, entrepreneurial activity within a specific geographical region is significantly reduced. Thus, we provide evidence of an unin-tended and negative impact on entrepreneurial activity caused by an indirect policy change. Fur-ther, this result unduly affects the recently injured or otherwise disabled. Our results are robust to alternative specifications and data sources, suggesting an important incidence of compensa-tory insurance regulation on entrepreneurial activity and, as a result, important considerations for future policymaking. Workers’ compensation is a state-level program that provides replacement wages to workers in-jured on the job. In 2011, amendments to Illinois’ workers’ compensation laws made this pro-gram less generous in terms of both financial benefits and time out of work. We study the impact of these amendments on entrepreneurial activity. We find that less generous workers’ compensa-tion has a large adverse effect on entrepreneurial activity because it constrains two important factors required for experimentation with entrepreneurship: financial resources and time. Our results hold up to several statistical models and controls, including local innovative and high-tech firms, as well as alternative datasets. Our findings yield important insights for policymakers in other states drafting such regulations and for researchers studying the incidence of such poli-cies.
publishDate 2026
dc.date.none.fl_str_mv 2026
dc.type.none.fl_str_mv info:eu-repo/semantics/article
format article
dc.identifier.none.fl_str_mv https://hdl.handle.net/20.500.14417/4299
url https://hdl.handle.net/20.500.14417/4299
dc.language.none.fl_str_mv Inglés
language_invalid_str_mv Inglés
dc.relation.none.fl_str_mv IE Business School
PID2023-148894NB-I00
IE University
Entrepreneurship
dc.rights.none.fl_str_mv Attribution 4.0 International
http://creativecommons.org/licenses/by/4.0/
info:eu-repo/semantics/openAccess
rights_invalid_str_mv Attribution 4.0 International
http://creativecommons.org/licenses/by/4.0/
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
application/pdf
dc.publisher.none.fl_str_mv Wiley
publisher.none.fl_str_mv Wiley
dc.source.none.fl_str_mv reponame:Repositorio IE
instname:IE
instname_str IE
reponame_str Repositorio IE
collection Repositorio IE
repository.name.fl_str_mv
repository.mail.fl_str_mv
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