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We examine whether impact investing is more effective in fostering business venture success and social impact when directed toward ventures located in vs. outside disadvantaged urban areas (i.e., areas with high crime, unemployment, and poverty). We explore this question in the context of loans made to business ventures located in French “banlieues” vs. “non-banlieues”. We find that loans issued to banlieue ventures, compared to non-banlieue ventures, yield greater improvements in financial performance, as well as greater social impact in terms of the creation of local employment opportunities, quality jobs, and jobs for minorities — all of which contribute to the social inclusion of marginalized communities and the development of sustainable cities.

We study the effects of financial shocks on labor markets in a model with both labor and financial frictions, two types of productive capital, physical and intangible, and in which only the former serves as collateral. A tighter borrowing constraint in this environment leads to a fall in credit and investment, skewed in detriment of intangibles, which in its turn lowers the marginal product of labor and reduces the incentives to hire workers. When feeding into the model financial shocks estimated from the data, we find that they explain labor outcomes during the last three downturns in the US, including the sharp increase in unemployment during the great recession.

We study a large-scale French reform that provided generous downside insurance for unemployed individuals starting a business. We study whether this reform affects the composition of people who are drawn into entrepreneurship. New firms started in response to the reform are, on average, smaller, but have similar growth expectations and education levels compared to start-ups before the reform. They are also as likely to survive or to hire. In aggregate, the effect of the reform on employment is largely offset by large crowd-out effects. However, because new firms are more productive, the reform has the impact of raising aggregate productivity. These results suggest that the dispersion of entrepreneurial abilities is small in the data, so that the facilitation of entry leads to sizable Schumpeterian dynamics at the firm-level.