Is self-employment a solution to young people’s employment problems?

Since the onset of the recent economic crisis, there has been a renewed interest among policy-makers across Europe in measures to stimulate self-employment and entrepreneurship, as an alternative to unemployment. However, fundamental questions about policies to promote self-employment, especially among young people, remain unanswered: what is the job-creation propensity of the young self-employed and do such policies create new quality jobs or just promote new forms of precarious, poor-quality employment?

A question of quality and quantity

Despite considerable interest among policy-makers, there is little evidence available concerning the number and quality of jobs that young people create for either themselves or other employees when they embark on entrepreneurial activities. The job-creation potential of youth self-employment can be measured by the flows of young people in and out of self-employment and by the share of young entrepreneurs with employees.

The quality of a job has both subjective and objective dimensions and these can be assessed against a well-founded conceptualisation of job quality developed for the European Union (Green and Mostafa 2012). Since the transition to adulthood varies in duration across countries and has been prolonged by rising insecurity, it is important to consider these dimensions for self-employed women and men aged under 35.

To measure these qualitative and qualitative dimensions, it is possible to use secondary data sources such as the European Union Labour Force Survey (EU-LFS), the European Working Conditions Survey (EWCS) and the European Union Statistics on Income and Living Conditions (EU-SILC). These data sets cover all EU member states.

What job-creation potential does self-employment create?

Analysis of the Europe-wide data shows that across all countries the job-creation potential associated with youth self-employment is very limited (Ortlieb, Sheehan and Masso 2017). Indeed, only a few young people exit unemployment by becoming self-employed, while, on the other hand, a non-negligible share of young self-employed become unemployed. A considerable share of young self-employed are categorised as ‘bogus self-employed’ – more akin to employees with the lower social charges associated with self-employment − and only a small share of young self-employed have employees.

Talking to young entrepreneurs … A more nuanced story

Europe-wide survey data only illustrates part of the story, and semi-structured interviews with young self-employed individuals in selected countries and industries can shed more light on their experiences. Interviews can capture a lot more information, including the creative and cultural aspects of self-employment, as well as details of the information and communications technology industries, which are important current and future sectors for young people.

The countries examined are useful for representing the range of different labour market regulatory environments, school-to-work transition schemes and levels of self-employment − Estonia, Germany, Ireland, Poland, Spain and the UK. The levels of youth self-employment ranged from 4.3% in Germany to 11.1% in Poland in 2014.

What is the quality of self-employment?

These interviews confirm that a high proportion of young self-employed had ‘innovative’ products, services and processes (Ortlieb, Sheehan and Masso 2017). Although many did not employ other people, they often had plans to do so, even though they anticipated some barriers and challenges.

The analysis of job-quality measures reveals a mixed picture. On the positive side, the young self-employed report comparatively low work intensity and a good work–life balance. Importantly, young self-employed generally see good opportunities for learning and work experience. Also, they emphasise that despite long working hours, self-employment has the advantage of providing them with autonomy and offering opportunities to utilise their skills. Among the young self-employed, women tend to report better working conditions than men.

However, large shares of male and female young self-employed do not feel well paid for their job and believe that their job offers limited opportunities for career advancement. Moreover, the findings indicate that many of them are under-employed and are concerned about social security risks such as access to sick pay, paternity leave and pensions. These ‘personal’ risks were of more concern than those related to their business.

What are the policy implications?

There are several policy implications of considering the quality and quantity of youth self-employment. Firstly, since the actual volume of jobs created through self-employment lags behind what politicians had expected, further policy measures are needed in order to realise possible job-creation potential in the future. Such policy measures could include mentoring and job-shadowing initiatives between established self-employed and young people considering entrepreneurial activities. It is also important to consider easier access to seed funding and other kinds of support for aspiring youth.

Furthermore, policies that extend the social security protection associated with salaried employees to the self-employed are needed. This would address concerns around access to health insurance, sickness and disability pay, maternity/paternity pay, unemployment benefits and pension coverage. Many young self-employed demonstrate a lack of awareness of the associated risks of self-employment or have insufficient financial means for contributing to optional insurance schemes. However, in many European countries, young self-employed only have limited social protection (European Commission 2014).

 A wake-up call

These results are a wake-up call for national and EU policy-makers who often regard self-employment as a panacea for unemployment and job-creation efforts. Targeted policy actions are required to assist young self-employed create jobs and to ensure that such jobs are of adequate quality. Policy also needs to reduce the significant social protection risks associated with self-employment. In particular, the self-employed in many countries are not entitled to unemployment benefits should their business fail, nor have they access to affordable health care. Overall, given the large amount of resources targeted at promoting self-employment within the EU, there is an important need for policies addressing the current and future well-being of the young self-employed.