Self-employment has been traditionally viewed as an alternative to unemployment, a last resort option when jobs are scarce. But that stereotype is outdated; self-employment may be the saving grace for the changing global economy.
Unemployment rates in the United States have gone from 10% at the height of the Great Recession in 2009 to 5.1% in August 2015 (US Department of Labor), but unemployment rates in other countries remain startlingly high. According to a 2015 report by the Organization for Economic Co-operation and Development (OECD), the highest unemployment rates plague developing and developed countries alike, including Nigeria (23.9%), South Africa (25.2%), Spain (24.5%), and Greece (26.6%).
Global unemployment is expected to increase by 8 million by 2019, according to the International Labor Organization. An additional 280 million jobs would need to be created to close this global employment gap.
That’s where self-employment comes in. Typically, self-employment rates have correlated with unemployment rates because individuals without jobs are left with few alternatives to the high risk option of starting a business. But in recent years that correlation hasn’t been attributed to lack of employment opportunities, but rather opportunities for capital gain.
According to a recent paper published by the German Institute for Economic Research, average earnings in wage employment in developing countries increased by roughly 50%, whereas average earnings in self-employment more than doubled. Rather than an option of necessity, self-employment is becoming a viable, perhaps better, alternative to traditional occupations.
Self-employment may be a model for economic improvement in developing countries, but what about in developed nations? The Kauffman Foundation, a leading institute on entrepreneurship, found that businesses less than five years old have accounted for most net new job creation in the United States. This is a contributing factor for why the U.S. has been more economically resilient than European countries.
But not just any self-employment will do. Eastern Europe has relatively high self-employment rates, but these countries have yet to see a growth in total employment. Conversely, self-employment in the UK has risen by 40% since 2010, underpinning the UK job recovery (Institute for Public Policy Research). If both areas have seen a rise in self-employment, why is economic development higher in one than the other? Research by JPMorgan Chase & Co identified several characteristics of self-employed workers that provide insight into this question. In contrast to Eastern Europe, self-employed individuals in the UK are older workers (aged 55-65) who tend to engage in high-skill professions.
And yet, despite research supporting the benefits of self-employment, leaders in economic development continue to push programs focused solely on employment. In the U.S, the Department of Labor has no performance metric to track self-employment. When someone becomes unemployed, they are guided to training and career fairs that focus on connecting them with another job. While the importance of these efforts is not remiss, the reasoning behind them is outdated. The changing global economy requires an innovative solution.
Entrepreneurship training that focuses specifically on the unemployed, highly skilled, older population will be key in supporting local communities to change their mindset from finding jobs to creating jobs. In Florida, just such a program, Startup Quest®, has seen 15-17% of graduates start their own companies throughout the state in 2013. Another 60% became employed in the first year. Not only does the experiential learning model empower individuals with the skill set to become entrepreneurs, but that same skill set is valued by employers seeking intrapreneurs in their own companies. Startup Quest® has shown that one program can support both self-employment and employment initiatives.
In the face of rising global unemployment, self-employment is a viable model for positive economic change. Unemployed, older, highly skilled workers are the prime demographic to become leaders in this entrepreneurship economy. We need to shift our mindset away from self-employment as an alternative to unemployment and toward self-employment as an opportunity for economic growth and resilience.
Alicia Leeper is the Business Analyst for Startup Quest®, a nationally recognized entrepreneurship training program that connects teams of degree-holding participants with successful CEOs and entrepreneurs to learn how to transform an invention or discovery into a product for the marketplace.