How young entrepreneurs should be supported: what assistance should governments provide?

Ms Elżbieta Bieńkowska, Member designate of the EC in charge of Internal Market, Industry, Entrepreneurship and SMEs. © European Union , 2014 / Source: EC – Audiovisual Service / Photo: Etienne Ansotte.

This article was exclusively written for the Sting by Mr Nikita Polukeev is a final year student at the University of Westminster. Mr Polukeev is affiliated to the European Confederation of Junior Enterprises (JADE). JADE is a cordial partner of The European Sting. The opinion expressed in this piece belongs to the writer and does not necessarily reflect The European Sting’s one.

In 2016, OECD reported that the average of young unemployed people was 13%, meaning that one-in-ten young people in the EU could not find employment. However, the current state will be completely different if we look at the comparison of the EU countries in detail. For instance, in the Southern part of the union, countries like Greece and Spain accounted for 47% and 45% of total youth unemployment respectively as shown in Figure 1.

(OECD, 2017)

According to this contrasting data, young people of Europe are struggling to find the job and join the workforce (OECD, 2017). This represents an economic challenge as being unemployed for the younger generations might be a catalyst for poorer wages and future unemployment (Blanchflower and Oswald, 1998).

There is a potential solution to integrating young people into the labour market through energizing the concept of young entrepreneurship. In other words, society and government should contribute their efforts to support and increase the number of young people, who are “interested in politics, giving to charities, extroverted, and more liberal in their political ideology” in order to reduce youth unemployment rates (van Ryzin et al, 2010, p.136).

Statistically, these are in 15-24 age group, which include NEETs (not in education, employment or training) and full-time enrolled students. There are societal merits such as job creation, innovation and market contestability to this concept (OECD, 2017).

It is widely acknowledged that a market failure of imperfect information along with the shortage of financial, social and human capital resulted in the poor participation of the young population in the entrepreneurial field. In response, the market provides youth enterprise assistance that can be categorised into 3 groups: “enterprise education”, “soft” support, “hard” support (OECD, 2017). To start with, “enterprise education” approach concentrates on providing essential skills, identifying gaps in the market, business planning and testing. Universities and Voluntary organisations are the main suppliers of this support. A good example of an education programme is Junior Achievement Europe program.

JA Start-Up Program for universities that allows students to come up with an idea of a real enterprise, deal with the financial schemes and experience a multi-national competition. Currently, this programme is established in 40 countries and involves more than 3.5 million students. The recent evaluation showed that participants of this program are three-six times more likely to start their own business in the future (Jaeurope.org, 2017).

Another source of entrepreneurial support available for the young people is advisors and mentors. This is a part of “soft” approach. The focus is to assist in developing networking competencies, provide relative advice and effectively transit young people into self-employment (OECD, 2017). A company of Shell offers Livewire International program, an area-specific business development support.

Additionally, young people become responsible for producing an investor-ready plan, experience finance management and opportunity to widen their professional network. It operates in more than 15 countries with 9.2 million of participants that benefited from this program (Shell.co.uk, 2017).

Furthermore, the “hard” support provides micro-financing in the form of funding through third-party policy tools. Both “soft” and “hard” approaches offer pre-and post- start-up support. The rationale for this support is to help young entrepreneurs to overcome the lack of financial capital required for the sustainable business development.

There are at least 57 youth charity funding grants available for the Europeans. One of the most rewarding is European Youth Foundation Program (Welcomeurope, 2017). This fund provides young people, that have the vision to promote peace and closer-cooperation between European states, with the financial and educational support (Foundation, 2017).

To sum up, issue of high youth unemployment is unequally spread among the Euro member states. The nature of this issue is arising from the limitations of public support of countries with high rates and market failure of imperfect information. OECD conducted an evaluative research on three main support approaches discussed above, evidence of which suggest that the “enterprise education” encourages young entrepreneurs’ intentions development for opening their start-ups more than the “soft” and “hard” types of support. This is due to the evaluation difficulties of those programs (OECD, 2017).

However, there is another way of intervening the market failure of imperfect information for the young people. This is the public policy interventions – Active Labour Market Policies (ALMP’). They represent a considerable value for the policymakers, because of positive externalities of integrating young entrepreneurs to the labour force (OECD, 2017). For instance, in 2013 Italian Government introduced the National Start-up initiative, which aims to simplify the procedures and start-up regulations for technology-based entrepreneurs. Also, it provides help with exporting and web resource to promote the idea to the investors (Oecd.org, 2017).

Moreover, 40% of young people want to be self-employed (Euro Flashbarometer, 2011). There is a room for the extra state intervention for helping out students and those in NEETs’ groups as the number of young unemployed is still very high. Firstly, many of public policies are not focused on young entrepreneurs only, so they cover a wide range of unemployed groups. There should be developed unique programs with “push” (self-employment is the only solution for these people) and “pull” (identified opportunity) factors in mind. Secondly, OECD (2017) assume that the typical start-up will be opened in tertiary sectors rather than secondary as it has low entry barriers and low capital requirements.

But those are the riskiest ones as the degree of competition will make those enterprises transitory. According to these assumptions and data, EU government should focus on the promotion of technological, niche, long-haul sustaining business ideas and support in their development. Additionally, in that, the self-employed can find challenging to return to employment after the business failure (Bruce and Schuetze, 2004). Meaning that there should be schemes for those individuals guaranteeing them future employment, so they can make risky decisions. Thirdly, statistics state that information provision can be the reason for the high number of start-up failures. Consequently, the government should create the pilot projects which will be testing the best opportunities to support the young entrepreneurs.

References  

Blanchflower, D. and Oswald, A.J. (1998) Entrepreneurship and the Youth Labour Market Problem: A Report for the OECD, OECD: Paris.

Bruce D and Schuetze HJ. (2004) The labour market consequences of experience in self-employment. Labour Economics 11: 575-598.

Ec.europa.eu. (2017). European semester thematic factsheet active labour market policies. [online] Available at: https://ec.europa.eu/info/sites/info/files/european-semester_thematic-factsheet_active-labour-market-policies_en.pdf [Accessed 7 Dec. 2017].

Euro Flashbarometer (2011a) Youth on the move, Gallop.

Foundation, E. (2017). Funding and grants Council of Europe EYF. [online] European Youth Foundation. Available at: https://www.coe.int/en/web/european-youth-foundation/home [Accessed 7 Dec. 2017].

Jaeurope.org. (2017) [online] Available at: http://jaeurope.org/index.php?option=com_attachments&task=download&id=352:JA-Europe-factsheet-2016 [Accessed 7 Dec. 2017].

Oecd.org. (2017). Youth entrepreneurship. [online] Available at: https://www.oecd.org/cfe/leed/youth_bp_finalt.pdf [Accessed 8 Dec. 2017].

Oecd.org. (2017). Youth Entrepreneurship Report. [online] Available at: https://www.oecd.org/employment/leed/Italy-Youth-Entrepreneurship-Report-FINAL.pdf [Accessed 4 Dec. 2017].

Riahi, S. (2017). Youth Entrepreneurship: Ottawa's Portfolio in Talent Development. [online] Timreview.ca. Available at: https://timreview.ca/article/394 [Accessed 5 Dec. 2017].

Shell.co.uk. (2017). Shell LiveWIRE. [online] Available at: http://www.shell.co.uk/sustainability/society/encouraging-enterprise/shell-livewire.html [Accessed 5 Dec. 2017].

van Ryzin GG, Grossman S, DiPadova-Stocks L, et al. (2009) Portrait of the Social Entrepreneur: Statistical Evidence from a US Panel. Voluntas 20: 129-140.

Welcomeurope.com. (2017). European funding programmes. [online] Available at: https://www.welcomeurope.com/subvention-europenne/telecharger+180.html [Accessed 6 Dec. 2017].

About the author

Nikita Polukeev is a final year student at the University of Westminster, who wants to bind his 3-5 years of career with the consultancy industry. He also wishes to start his political career in the Russian Government at an age of 45-50 years. Nikita has a huge interest in Economics and International Relations, which are in fact the main topics of his study pathway. He is currently an International Development Senior Consultant at WBC where he actively contributes to regular enlargement operations and where he constantly proves his high involvement in international activities.