9. Strengthening social inclusion through inclusive entrepreneurship

Why is it important?

Inclusive entrepreneurship is an important vehicle for achieving inclusive growth. Business creation by under-represented and disadvantaged groups helps create jobs and fight social and financial exclusion, while stimulating economic growth across the economy. However, while entrepreneurship plays an important role in stimulating innovation and driving job creation, only a relatively small part of the population is involved in starting a business, and not all people have the same opportunities to create and run a business. The objective of inclusive entrepreneurship policies is to ensure that all people have an opportunity to start up and operate in business or self-employment, regardless of their personal characteristics and background.

Supporting the creation of sustainable businesses by members of target group populations is expected to increase labour market participation and attachment, thus providing individuals with an opportunity to earn income and improve their standard of living. Furthermore, entrepreneurship offers an opportunity for individuals to be more active members of society, increasing their self-confidence and building their local community. Lastly, the employability of individuals within the target populations is also expected to improve. While not everybody who receives entrepreneurship training or support will start a business, individuals participating in entrepreneurship training programmes, interacting with a coach or mentor, or receiving assistance in developing a business plan, will acquire skills and experience that make them more employable.

These outcomes can benefit economies, as unemployed and inactive people move into work, either through self-employment or wage employment. This can also lead to more business start-ups that have the potential to create jobs for others, and improve growth prospects by utilising under- or unutilised human capital.

What are current trends and challenges?

Youth and women are less likely to be self-employed than the mainstream population. In 2016, men were nearly twice as likely as women to be self-employed across OECD countries, although there are some countries such as Mexico and Chile, where the gender gap in the self-employment rate is very small (Figure 9.1). Youth are also under-represented in self-employment. Fewer than 5% of working youth (15-24 years old) were self-employed in nearly all OECD countries in 2016, which was approximately one-third of the proportion of the adult population. Moreover, few unemployed people return to work through self-employment. In most countries, approximately 2% of unemployed people report that they intend to return to work by becoming self-employed. However, nearly 3% return to work by starting a business, suggesting that many cannot find any other employment opportunity. Other social target groups such as seniors and migrants are not under-represented in self-employment, but often face more and greater barriers to entrepreneurship (and in the labour market more generally).

Figure 9.1. Self-employment rate, 2016

Percentage of total employment

Note: *denotes data from 2015.

Source: Eurostat (2017), Labour Force Survey, available at: http://ec.europa.eu/eurostat/web/lfs/data/database; OECD (2016),”Indicators of gender equality in entrepreneurship”, OECD Gender Portal, available at: www.oecd.org/gender/data/.

Furthermore, businesses started by people from these social target groups appear to be smaller. Self-employed women and youth were less likely than the average to have employees in nearly all countries in 2016 (Figure 9.2). Approximately 30% of self-employed men in OECD countries had employees, while only about 20% of self-employed women did. Self-employed youth were even less likely to have employees – fewer than 10% did in 2016. The picture is mixed for the self-employed over 50 years old, who were less likely to have employees than the average in approximately half of OECD countries.

Figure 9.2. Proportion of self-employed with employees, 2016

Note: * denotes data from 2015

Entrepreneurs from under-represented and disadvantaged groups are more likely to report barriers to business creation than the general population. One of the most frequently cited barriers to business creation is access to finance, which was cited by 26% of youth and 22% of women in 2012 (Figure 9.3). Youth were also twice as likely as adults to cite a lack of entrepreneurship skills as a barrier. Older people appear to face different barriers, since they tend to have more experience in the labour market, and are more likely to have relevant professional networks and savings that can be used for business creation. Significant barriers to entrepreneurship for senior entrepreneurs include a lack of awareness, age discrimination, declining health, financial disincentives, as well as the opportunity cost of time (i.e. they may prefer leisure activities over the value future income, since the timeframe for reaping the benefits may be relatively short). The barriers typically faced by the unemployed include a lack of finance and skills, but also small or outdated professional networks and high opportunity costs since the income earned in self-employment may be less than the unemployment benefits received. Immigrants face different barriers, including a lack of knowledge about the regulatory and institutional environment, low levels of social capital and language skills.

Figure 9.3. Barriers to business creation in the European Union, 2012

"Why would it not be feasible for you to be self-employed within the next 5 years?” (Multiple answers possible)

Source: European Commission (2012), “Entrepreneurship in the EU and Beyond”, Flash Eurobarometer, No. 354.

What are key areas for policy to consider?

Policy makers can do more to support inclusive entrepreneurship by addressing market, institutional and behavioural failures, that tend to fall heavily on disadvantaged and under-represented groups such as the unemployed, youth, women and migrants. This includes building a culture that is supportive of entrepreneurship in diverse social groups; increasing awareness about the opportunities, benefits and practices of entrepreneurship; as well as increasing motivations to pursue these activities. Moreover, inclusive entrepreneurship policies should not only seek to increase the number of start-ups among under-represented and disadvantaged groups, but also seek to improve the quality of these start-ups so that they have a greater chance of becoming sustainable. In this respect, it is also important that the businesses created be sustainable and minimise the displacement of other activity. Therefore, inclusive entrepreneurship policies and programmes need to be designed to encourage creativity and innovation, and be targeted at those entrepreneurs with distinctive business ideas with the potential to become sustainable businesses.

Key policy approaches used to promote and support inclusive entrepreneurship include entrepreneurship training, coaching and mentoring, facilitating access to finance and building entrepreneurial networks. To be effective, support measures need to be tailored to the unique challenges faced by the different social target groups, and targeted outreach efforts are needed to reach potential entrepreneurs. For example, Going for Growth in Ireland provides coaching and mentoring to growth-oriented women entrepreneurs, as well as helping them build their networks. It is also important for policy makers to consider bundling support measures into packages, since many of the barriers and challenges are inter-related, and to utilise appropriate delivery mechanisms. This approach is taken by the BBZ programme in the Netherlands, which provides entrepreneurship training, coaching and mentoring, and an allowance to support people receiving social welfare assistance in business creation. Support measures are often more effective when specialist agencies or specialist branches of mainstream agencies are used, but client density must be sufficiently high to achieve cost efficiency. Key actions policy makers may consider include:

• Deepening the understanding of the challenges that different social target groups face in entrepreneurship, and of the effectiveness of different policy approaches used to address these challenges. This calls for improving data collection and efforts to assess the impact of inclusive entrepreneurship policies and programmes.

• Addressing barriers in the process of acquiring entrepreneurship skills by offering entrepreneurship training courses that exploit the potential of online technologies, and provide complementary support such as finance, coaching and mentoring.

• Improving access to finance in conditions of high risk and little collateral by providing financial information and advice to entrepreneurs, supporting the matching of investors and entrepreneurs, offering loan guarantees, and participating in the emergence of microfinance institutions and crowd funding platforms focused on disadvantaged and under-represented groups.

• Providing flexibility in how social security entitlements are paid, allowing for lump sum payments to support business creation and providing allowances or continuing to pay unemployment benefits for a fixed period of time to people who start up from unemployment.

• Offering business development support to upgrade the quality of businesses started by people from under-represented and disadvantaged groups, including by encouraging business projects in markets where there is excess or growing demand and by developing business management expertise.

• Building the entrepreneurial networks of growth-oriented entrepreneurs from outside the mainstream population to help fill gaps in their access to entrepreneurship skills and finance.