5.000.000 NEW SUCCESSFUL BUSINESSES NEEDED IN 10 YEARS TIME FOR ACHIEVING EUROPE’S YOUTH EMPLOYMENT GOALS
After creating the Glossary of European Terminology in Youth Entrepreneurship, our next step in the preliminary research conducted by the 4 partners of the Y Incubate project was to answer the question “Why do we want more businesses?”.
Scope and aim
We already know that Europe sees youth entrepreneurship as a key part of the solution to youth unemployment. What we wanted to achieve answering the question was to see the real dimension of the problem and how incubators are part of the solution.
We collected data from existing resources: most of them come from online desk research, National and European published data, customer desk research. We calculated the percentages based on the EU 2o20 declared goals.
Findings – youth entrepreneurship and Europe 2020 employment goals
Europe sees youth entrepreneurship as a key part of the solution to youth unemployment. According to the Global State of Youth Entrepreneurship Report 2013, “as many as 73 million young people are estimated to be unemployed in 2013 and studies by the International Labour Office (ILO) indicate that the youth are three times more likely than adults to be unemployed. With the formal sector in many countries experiencing stagnant or slow growth, it is unlikely that this sector will be able to offer work opportunities to the increasing number of young people looking for employment. Unless alternative employment options are encouraged, the number of unemployed, underemployed youths and youth in vulnerable employment will continue to increase.
Youth entrepreneurship needs to be enabled, as an additional way of allowing the youth into the labour market and promoting job creation.” The Europe 2020 employment goals for both youth and adults is 75% employment.
Unemployment rate of young people aged 15 to 29, by educational attainment, EU-28,2002-13(%)
We also know that organisations and initiatives such as the ILO, United Nations, World Bank and YBI highlight a number of additional positive advantages to stimulating youth entrepreneurship, besides the creation of new jobs:
- young entrepreneurs are more likely to hire fellow youths;
- young entrepreneurs are particularly responsive to new economic opportunities and trends;
- young people are active in high growth sectors;
- young people with entrepreneurial skills are better employees;
- young people are more innovative and often create new forms of independent work;
- young people who are self-employed have higher “life satisfaction”;
- entrepreneurship offers unemployed or discouraged youth an opportunity to build sustainable livelihoods and a chance to integrate themselves into society;
- entrepreneurial experience and/or education help youth develop new skills that can be applied to other challenges in life. Non-cognitive skills, such as opportunity recognition, innovation, critical thinking, resilience, decision making, teamwork and leadership will benefit all youth whether or not they intend to become or continue as entrepreneurs.”
Findings – why do we need more businesses
Small and medium sized enterprises are the engine of economic sustainability and development in Europe. Over the past years they have managed to support the EU economy through the global financial crisis (better than large enterprises) and are now slowly recovering to pre-crisis levels.
The EU has set entrepreneurship as one of the key pillars of future development, as reflected by the fact that it is one of the 5 foundations of the Small Business Act.
– 99/100 companies are SMEs
– 2/3 employees are in a SME
– 58 cents/euro value added are produced in an SME
According to Eurostat, micro enterprises employ almost a third of the EU28 workforce. Considering the quite high unemployment rate in Europe of around 11% and the Youth Unemployment Rate – almost double the overall unemployment rate, new businesses are seen as part of the solution to create new jobs, especially for young people.
Needed rate of incubation for attaining 50% of employment target
If we were to benchmark the highest performing countries (“Germany (4.5 %), the Czech Republic (4.8 %), Malta (5.1 %) and the United Kingdom (5.3 % in July 2015)”) and set the target at around 5% unemployment, this means there is a need to create around 25.410.000 new jobs (*calculated for EU28 at 508.2 million people and 5.2% inactive) and considering the current structure of size of businesses, that means 1.655.374 new businesses. Considering this would be a 10 year objective, and that the current 10 year survival rate of new businesses is ~30% (and assuming a constant supply of new businesses per year) => 5.000.000 new businesses over 10 years and 500.000 / year.
If business incubators were responsible for 50% of this target and there are around 1000 Incubators and Accelerators in Europe, then we need current incubators to graduate 500 Startups per year! Another simple scenario would be to keep the number of start-ups/incubator at a reasonable average number of graduated enterprises (about 20/year), in which case we need 24.000 more incubators and accelerators (a growth of 2400%)
Taking into consideration that the total growth in number of SMEs is positive, but estimated at only +0.38% for 2015 it becomes clear that in order to truly fulfill the strategic promise of youth entrepreneurship and self-employment we need to create new enterprises much faster and better than we do today, by a factor of x10-x20. Even if the target were 5 times less ambitious (the Europe 2020 goal is 75% Employment) the conclusion still remains valid as any kind of improvement target higher than 200% requires strategic transformation.
How can we close the gap between the current state (1000 incubators) and the desired state (24 000 more incubators that perform well in the next 10 years)?
If you have documents that might enrich our study, kindly let us know by submitting your suggestions through our website.
The article regarding youth entrepreneurship and the number of businesses we need was prepared by Gabriela Solomon and Vlad Atanasiu from Universitatea Alternativa (RO), with additional contributions by Manuela Trovato from Impact Hub Siracusa (IT).