Member Article

Government-funded business start-up programmes intended to tackle unemployment do not help to significantly reduce it

Government-funded business start-up support programmes intended to tackle unemployment do not improve employment levels and are not worth investing in, according to new research from emlyon business school.

The research, conducted by Alain Fayolle, Professor of Entrepreneurship, and his colleagues from emlyon business school, completed econometric analyses on 25 OECD countries using Global Entrepreneurship Monitor (GEM) data from the period 2002-2013, to determine the effects of this kind of start-up support programmes on entrepreneurship and unemployment reduction.

The research revealed that despite these countries having different and fluctuating levels of investment in start-up support programmes, the overall entrepreneurship rate did not change significantly from country to country – meaning these programmes had no influence over unemployment rates.

The research also found that such start-up support programmes only encourage what the researchers describe as “necessity entrepreneurship” – the creation of a business due to a lack of other employment opportunities, and not “opportunity entrepreneurship” – the creation of a business due to an idea being promising, feasible and profitable. This meant that only a small number of profitable businesses with the potential for growth were created, which only slightly affected unemployment figures.

Saulo Barbosa, professor of entrepreneurship and co-author of Alain Fayolle says,

“Many people believe that these programmes are a key tool in fighting and reducing unemployment, however our research shows that the entrepreneurship rate is not affected in a significant way by the amount of public expenditure allocated to business start-up programmes. These programmes do not encourage the type of entrepreneurship that contributes to lowering unemployment.”

Professor Saulo Barbosa suggests that this money would be better invested in a holistic approach to tackling unemployment, such as investing in a better health care system and better education.

Professor Alain Fayolle concludes,

“Policy makers may not jump at the opportunity to invest in health and education as they are not seen as short -term solutions, however a well-educated and healthy population will be more likely to choose entrepreneurship and with a greater likelihood of success too. The desire to create and pursue opportunities might be instilled more easily and effectively through education, whilst a good health system will ensure entrepreneurs maintain their health, which will likely constitute to further development and longevity of SME’s.”

This was posted in Bdaily's Members' News section by Peter Remon .