EY - Maria Pinelli

Young entrepreneurs must be supported to avoid a lost generation

By Maria Pinelli

 

23 September 2013

"I have a job." It’s a simple statement that resonates everywhere in the world. You can debate whether human talent is more important than financial capital to the global economy, but it’s hard to overestimate a job’s importance to a person’s self-esteem and well-being.

Indeed, I’d argue that job creation may be the world’s lifeblood. And entrepreneurs continue to be the job-creators worldwide, helping to pave the way for the rise of the new global middle class. That’s good news at a time when the U.S. unemployment rate stands at 7.6% and unemployment in the Eurozone ranges far higher.

According to the June 2013 EY job creation survey of entrepreneurs, 70% plan to hire at home this year, continuing the uptick from 68% of respondents from our June 2012 survey. Meanwhile, 47% of 2013 respondents plan to hire abroad, up from 44% last year. They continue to raise the standard of living in the countries where they operate by creating jobs — good jobs — that for the most part require experience (81%).

And this could be the year that we see entrepreneurs and small business owners making investments in productivity. Though entrepreneurs say they continue to hire abroad primarily to enter new markets (74% in 2012; 63% in 2013), this year marks a shift, in that more entrepreneurs will be adding staff to boost production (28% in 2012; 45% in 2013). Asia-Pacific takes the lion’s share of the trend at 64%, versus 51% for Europe, the Middle East, India and Africa (EMEIA), followed by the Americas, at 29%.

But the picture isn’t all rosy. As economic recovery remains fragile in many countries, including the U.S., concerns over low growth are compounded by rising levels of youth unemployment. In the U.S., for example, the youth unemployment rate stands at 16.2%.

In most Western countries, youth unemployment has reached a critical level and is expected to rise over the next five years, threatening the global economic recovery and raising the specter of a "lost generation."

The International Labor Organization (ILO) reports that almost 13% of the world’s youth — close to 75 million young people — are unemployed or underemployed. In the worst-hit countries, such as Greece and Spain, youth unemployment rates have risen well above 25%.

According to Gregoire Sentilhes, President of NextStage and Co-Founder of the G20 Young Entrepreneurs Alliance (YEA), "Youth unemployment is now a ticking bomb for all governments, both from developed countries and emerging countries. In the 21st century, the jobs we need to create will come neither from the big corporations nor from government, but they will come mainly from entrepreneurs."

As a result, governments are looking to small businesses and startups to create jobs.

And young entrepreneurs are willing. The EY job creation survey shows that young entrepreneurs are optimistic about their future and recognize that their businesses — and many more like them — have a crucial role in tackling the youth unemployment crisis. Indeed, 50% say that promoting the role of entrepreneurs in job creation will have a high impact on entrepreneurship in their countries over the next three years.

Entrepreneurs are significant engines of both job creation and economic growth. Research by EY found that these businesses represented on average, two-thirds of employment among Western countries.

These businesses also add jobs at about twice the rate of their larger rivals and are more likely than larger companies to recruit previously unemployed people. Providing young entrepreneurs with the tools and support they need is therefore a critical component in tackling the youth unemployment crisis.

Young entrepreneurs, too, warn they must get further support. While access to funding remains critical, they stress the need for new and different funding models, and they are looking to governments to play a more supportive role, perhaps by encouraging more public/private partnerships and mentoring opportunities.

Young business owners believe in boosting entrepreneurship through education, and they argue that a cultural shift is necessary for entrepreneurship to accelerate.

Through our research, we have learned that young entrepreneurs identify five key action areas:

  1. Expand the choice of funding alternatives
  2. Increase mentoring and broader support
  3. Change the culture to tolerate failure
  4. Target and speed up incentives
  5. Reduce red tape and excessive taxation

Will any of these recommendations happen? Some governments are trying. South Korea’s Small and Medium Business Corporation has provided support, education and funding to more than 6,000 small and medium-sized manufacturers. Elsewhere, the Canadian Youth Business Foundation offers young entrepreneurs financial support, but each entrepreneur also gets access to a personal mentor for two years. To date, it has helped 5600 entrepreneurs to create 23,000 jobs.

But in order to build and maintain momentum on job creation and youth unemployment, more — much more — must be done. Quite simply, the social and economic costs of losing a generation of young people to joblessness are too high to contemplate.

More blog entries from Maria Pinelli.