EY - Avoiding a lost generation

Five imperatives to help spur jobs and avoid an entire lost generation

At a time when society’s biggest issue is youth unemployment, businesses and governments must work together to help young people develop an entrepreneurial mindset. That means fostering a culture which supports young people to take risks, set up businesses, create jobs and become masters of their own destiny.

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EY - Infographic: Youth unemployment across the G20 countries

Governments look to entrepreneurs and start-ups to kick-start their economies and provide the jobs that will sustain growth. Yet despite the payback in terms of potential job creation, government investment in SMEs is scarce. To get a more complete picture, we interviewed 1,000 treps ages 40 and under as part of our 2013 survey. This was out of more than 1,500 treps from across the G20.

We found that young treps are optimistic and recognize their crucial role in tackling the youth unemployment crisis. But they also warn that new policies and cultural changes are necessary to boost entrepreneurial activity.

Nearly 13% of the world’s youth — close to 75 million young people — are unemployed, according to the International Labour Organization (ILO). In the worst-hit countries, youth unemployment rates have risen well above 30%. The social and economic costs of losing a generation to joblessness are too high to contemplate. Through our research, young treps identify five key imperatives for action.

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1. Unfurl more funding alternatives

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EY - Infographic: How to help young treps

"Young people simply don’t have the guarantees or collateral for loans," says Merten Sievers of the ILO. Funding remains the biggest stumbling block for treps, which is no surprise. Nearly three-quarters (75%) of the treps we interviewed say that access to funding remains very or somewhat difficult. Treps from low-income backgrounds are particularly disadvantaged, given the typical reliance on personal savings, friends and family in early-stage ventures.

Yet funding will have the greatest impact on accelerating entrepreneurship over the next few years globally, according to 49% of the treps we surveyed. They are demanding more support in finding nontraditional sources of capital such as crowd-funding. An even greater share of women treps call for improved access to crowd-funding and mentorship.

2. Beyond capital, deliver mentorship and broader support

Several governments, including South Korea and Canada, have introduced measures to help treps with support, mentoring and education, beyond simply access to funding. Research suggests that 88% of treps with mentors survive in business, compared with a 50% failure rate without such support.

Younger treps are also more likely to depend on a broader range of support mechanisms than their older peers. They have limited experience in running businesses and fewer opportunities to build useful networks. There is a pressing need for a stronger support ecosystem: with business incubators, start-up programs, entrepreneurs’ clubs and associations.

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3. Change the culture to tolerate failure

Treps are crucial job creators, and their governments need to promote this. In fact, 50% of young treps think this action would have a high impact on supporting entrepreneurship in the G20. Society, too, needs to be more tolerant of failure and recognize treps as providers of innovative products.

As youth unemployment reaches crisis levels, schools and universities can help. "The key is to start earlier and to really engage students in unlocking their entrepreneurial mindset, whether or not they are going into large employment opportunities or starting their own businesses," says Amy Rosen, Chief Executive of the Network for Teaching Entrepreneurship (NFTE).

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4. Accelerate incentives

Younger treps expect more support from their governments and report an urgent need for government-backed initiatives. In fact, 41% feel that governments could accelerate access to funding through tax incentives for investment in small businesses.

G20 nations have tried to provide support. Our analysis of G20 government leading practices identified more than 200 government-backed initiatives designed to boost SMEs. Governments also need to perceive the differences between male and female treps. Our survey shows that young men are more likely to prioritize education-related initiatives while young women focus more on grants and business incubators.

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5. Reduce red tape and excessive taxation

Young treps will not succeed in greater numbers until governments create a simpler, SME-friendly business environment. More than one in two treps (53%) believe this would provide a crucial boost to their efforts. A good example is the Small Business Jobs Act in the US. This program offers SMEs a package of tax cuts and exemptions as well as greater parity when competing for government contracts.

Thirty-three percent of respondents say a single government agency to help new businesses with regulation would do the most, while 14% back the creation of a single agency to help new businesses with tax filing requirements.

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EY - Avoiding a lost generation June 2013
Download the report.

Global job creation survey June 2013
Job creation is at the heart of economic recovery. And treps are at the heart of job creation. Read our current and past job creation surveys here.