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Symposium 2013

Proposal - Youth Entrepreneurship as a Mechanism to Avoid a Lost Generation and Drive Innovation

The Challenge

Innovation as the foundation of economic dynamism and prosperity is a complex process involving contributions from various players. In particular it deals with the transformation of basic science into ...

Innovation as the foundation of economic dynamism and prosperity is a complex process involving contributions from various players. In particular it deals with the transformation of basic science into rival proposals that improve the well-being of mankind. For more than 200 years technological innovation has driven economic development. All growth is based on innovation. The process of innovation involves complementary contributions from science, from entrepreneurs, from the financial markets, from the investment community and from government.

Problem

The recent economic crisis, the worst since the Great Depression in the 1930s, has led to a disproportionate increase in youth unemployment in both the developed as well as the developing world. As developing countries account for almost 90% of the world’s youth, this shocking situation largely affects the poorest of the poor countries. However, as we have witnessed over the past 4 years, youth unemployment is a truly global problem. In Europe, for example, the youth unemployment rates increased by 60% over the past 4 years (ILO, 2012), leaving every 4th employable young person without a job. Across all OECD countries, the youth unemployment rate is consistently 1.5-4.5 times higher than the adult unemployment rate (Vogel, 2013a). Unemployment has been shown to have severe effects on individuals, particularly when they are still young and in a stage of developing their professional “Self” (Blakely et al., 2003). If no suitable labor market incentives are identified, the result will be economic waste, an undermined social stability and a marginalization of the local workforce, a valuable natural resource for any country (OECD, 2009). Moreover, these downside effects will ultimately have a negative impact on an economy's innovativeness. The threat of a ‘lost generation’ is omnipresent, particularly as early unemployment increases the likelihood of subsequent unemployment (Clark & Summers, 1982). It is therefore of critical importance that all stakeholders collectively work on strategies to develop decent employment conditions for today’s and tomorrow’s youth.

Solution

Within the portfolio of active labor market policies (ALMP) that governments have developed to address unemployment (Card et al., 2010), entrepreneurship is increasingly accepted as a central strategy, considering that it is a major driver of economic development, innovation and job creation (Audretsch 2002). Despite the increased global awareness that entrepreneurship is a viable career option for young people, the majority of entrepreneurship promotion programs do not account for the specific characteristics and needs of young would-be-entrepreneurs and treat them as part of the general adult population (Schoof, 2006). Considering that we need to tackle today’s and tomorrow’s youth unemployment, I suggest both short-term and long-term strategies.

Short-Term

Innovation is a multi-stakeholder process. In order to avoid skipping an entire generation of innovators it is therefore of vital importance to find an immediate cure for today's unemployed young people. One mechanism to help reduce unemployment is to support those who want to become self-employed. For this purpose, several ALMP have been developed across Europe, providing support to those seeking to start a business after a period of unemployment (Haas & Vogel, 2013). Despite constituting a relatively small portion of national active labor market expenses (1-6% of ALMP spending, OECD 2000) firms established by the previously unemployed make up a large proportion of all new firms as indicated by the 30% in Sweden (Statistics Sweden, 1998), and more than 25% in France (Désiage et al., 2010). Moreover, firms created by the unemployed are more successful than one would expect with above average survival rates and comparable rates of job creation (Haas & Vogel, 2013). Following the example of several countries (e.g., Belgium and Greece), dedicated programs need to be established that help unemployed young people in setting up their companies. Considering that prior research has proven the success of these programs (e.g., Caliendo & Kritikos, 2009) and that there exists a long history of such programs with strong knowledge about what works and what does not work, it should be a relatively easy endeavor to set up even more programs and send every single unemployed young person through such self-employment programs.

Long-Term

While the above-described short-term solution aims at directly helping those young people that are currently (and of course also in the future) unemployed, there need to be specific strategies that tackle the more fundamental causes (e.g., the lack of employability of today’s youth and the misalignment between expectations and reality of the workplace) of youth unemployment to avoid repeating what we are seeing today. One strategy that has been repeatedly suggested but only partly realized is to ensure that every young person should attend at least one action-driven entrepreneurship class during their education (either in the later stages of the secondary education or, if applicable, in the early stages of their tertiary education). The goal is not to get everyone to become an entrepreneur and start businesses but rather to expose them to the everyday challenges of setting up and running a business. As a consequence, there are both primary and secondary effects from a labor market perspective. First, those that do decide to pursue an entrepreneurial career will be responsible to drive the economic development of the decades to come and create jobs for others. Because young founders tend to hire other young people this can consequently further reduce youth unemployment (Meager et al., 2003). Second, those that decide not to pursue an entrepreneurial career will still benefit from an entrepreneurial education in that their employability will increase (European Commission, 2013). At The Entrepreneurs' Ship we work with governments, universities and other stakeholders to develop short-term and long-term strategies to build healthy entrepreneurial ecosystems (Vogel, 2013b).

Literature

Audretsch, D. (2002). "The dynamic role of small firms: evidence from the US." Small Business Economics 18(1): 13-40.

Blakely, T. A., S. C. D. Collings and J. Atkinson (2003). "Unemployment and suicide. Evidence for a causal association?" Journal of Epidemiology and Community Health 57(8): 594-600.

Caliendo, M. and A. Kritikos (2009). I Want to, But I Also Need to: Start-Ups Resulting from Opportunity and Necessity, Institute for the Study of Labor (IZA), Bonn

European Commission (2013). Entrepreneurship Education Needs to be Boosted: http://ec.europa.eu/enterprise/newsroom/cf/itemdetail.cfm?item_id=6412

Guillén, M. (2001). "Is globalization civilizing, destructive or feeble? A critique of five key debates in the social science literature." Annual Review of Sociology 27(1): 235-260.

Haas, M., & Vogel, P. (2013). Supporting the Transition from Unemployment to Self-employment – A Comparison of Governmental Support Programs across Europe, in: J. Brewer, S. W. Gibson (Eds.) Necessity Entrepreneurs: Micro-Enterprise Education & Economic Development, Edward Elgar.

ILO (2012). World of Work Report: Better Jobs for a Better Economy,

Manpower Group (2012). Youth unemployment Challenges and Solutions: What Businesses Can do Now.

Meager, N., P. Bates and M. Cowling (2003). "An evaluation of business start-up support for young people." National Institute Economic Review 186(1): 59-72.

Monitor Company Group (2009). Paths to Prosperity - Promoting Entrepreneurship in the 21st Century, Monitor Company Group, Cambridge, MA

Schoof, U. (2006). Stimulating youth entrepreneurship: Barriers and incentives to enterprise start-ups by young people, International Labour Office.

Vogel, P. (2013a). The Employment Outlook for Youth: Building Entrepreneurial Ecosystems as a Way Forward. Paper for the G20 Youth Forum 2013, St. Petersburg, Russia.

Vogel, P. (2013b). Empowering Tomorrow's Leaders to Re-Invent the Labor Market. http://www.tedxlausanne.org/speakers/peter-vogel, IMD, Lausanne Switzerland.

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