Can Promoting Youth Entrepreneurship and Self-Employment Be Counterproductive?
Many countries have turned to promoting self-employment and entrepreneurship as a way to address youth unemployment and catalyze economic development. A new study in American Behavioral Scientist explores how effective these policies are in spurring economic development among young people in low, middle, and high-income countries.
Using the International Labor Organization (ILO)’s 2012 School-to-Work Transition Survey (SWTS), the researchers of this study sampled 102,587 people from the ages of 15-29. Twenty-eight countries from regions including Sub-Saharan Africa, the Middle East, North Africa, Central Asia, Latin America, the Caribbean, and Asia Pacific are represented in the study.
The results of the study highlight the complex relationship young people have with self-employment, ultimately suggesting that self-employment does not necessarily create long-term economic opportunities for young people.
- Formal employment resulted in higher income growth over time than self-employment. Formal employees had the highest levels of income growth over time, while self-employed workers showed more stagnant income growth over time. The proportion of the self-employed whose net monthly income was zero was highest in low-income countries (21 percent) than in middle-income (9 percent) or high-income (2 percent) countries.
- Young people who transitioned to a status of self-employment were often unpaid family or house workers prior, rather than former employees. About 30 percent of young people who transitioned to self-employment previously came from an unpaid family or houseworker status. Formal employees were least likely to transition to self-employment, with only 10 percent of respondents reflecting this.
- The majority of self-employed young people had received only primary education or none at all. Of the self-employed respondents in this study, 34 percent had low education levels (none or primary), 21 percent had medium education levels (secondary), and just 9 percent of respondents had higher education levels (post-secondary). In contrast, 84 percent of all respondents with a higher education level were formally employed.
- The most common employment status among young people in middle to high-income countries was formal employment. For low-income countries, it was the opposite. In middle and high-income countries, formal employment accounted for 64 percent and 77 percent of young people’s employment status respectively. However, in low-income countries, only 29 percent of young people were formally employed. Alternatively, the majority of young people in these countries were self-employed.
- As a country’s income level increased, the amount of time spent in self-employment decreased. The Gross National Income of the countries studied was strongly linked to the median duration of self-employment. Low-income countries had a median duration of 24 months, compared with only 12 months for the high-middle income countries.
Based on the findings above, the authors suggest that young people in these regions often choose it out of necessity and that formal employment provides more advantages. That said, they also found that self-employed respondents were just as satisfied with their jobs and had a slightly stronger sense of job security than formal employees.
The authors further conclude that promoting entrepreneurship as a means for long-term economic development among young people may not be as effective as often perceived.
Previous research shows that founders who have more experience and are older in general tend to perform better as entrepreneurs with sustainable economic impact. Policymakers should look to these research findings to understand when entrepreneurship is most economically impactful –– and when it is not.
Contributed by Penmai Chongtoua
The full report can be accessed here.