New Entrants to and Determinants of Survival of Youth Self-Employment in Spain

The economic crisis boosted the Spanish unemployment rate from 8.6% in 2007 to 23.7% in 2014. For the young, the employment rate decreased from 60% to 36% in the same period. However, the self-employment rate in Spain is high by EU standards: 16.9% in 2013 (below 10% for the youth) compared to 14.4% in the EU-28 and to 14% in the EU-15. For policy-makers self-employment has thus become an answer to the lack of salaried employment, and the promotion of entrepreneurship is a key goal of the Spanish Strategy of Entrepreneurship and Youth Employment 2013-2016. In this economic and policy-making context it is of particular relevance to know the profile of the new self-employed workers and the determinants of the survival of those jobs, the two goals of this paper. The level of education will be a key variable to establish different types of self-employed workers and to study how their survival patterns are.

Data drawn from the 2004 to 2013 Continuous Sample of Working Lives (CSWL) will be used. The dataset includes information on the employment spells and previous labour market trajectory of a sample of all individuals with any type of relationship to the Social Security (i.e. employed, unemployed receiving benefits or pensioner).

The reason to undertake self-employment has been found a determinant of survival (Block and Sandner, 2009; Giacomin, 2011; Furdas and Kohn, 2011). ‘Necessity’ (‘push’) entrepreneurs seem less likely to survive than ‘opportunity’ (‘pull’) entrepreneurs (Amit and Muller, 1994; Reynolds et al., 2001). The former are defined as those who lost their job and decided to move to self-employment; the latter are persons who perceive self-employment as a challenge that may provide potential rewards. Using the 2004 to 2013 Continuous Sample of Working Lives we will thus distinguish entrepreneurs according to their labour market status immediately before they become self-employed: new self-employed workers transiting from employment as ‘pull’ entrepreneurs, and those transiting from unemployment or non-participation in the labour market as ‘push’ entrepreneurs (Baptista et al., 2013).

Our first hypothesis is that ‘push’ entrepreneurship has increased, especially for low employability groups, due to the scarcity of waged employment. Preliminary analyses of the proportion of young workers entering self-employment from employment (decreasing) and of the probability of entering self-employment from unemployment by education (higher among the less qualified) seem to confirm said hypothesis.

Regarding outflows from self-employment, the survival rate of new businesses after one year was 70% before the crisis (2004-2007), and has dropped to 60% now. Generally young self-employed workers have lower probabilities of survival than older workers. We will consider as possible determinants of survival the socioeconomic characteristics of the individuals (sex, age, level of education), their labour market trajectory (in terms of previous working periods and number of employment spells) and the industry of the business. Our hypotheses in this regard are: i) that previous labour market experience has a positive effect on survival; ii) that high qualified self-employed workers have a greater probability of survival than low qualified workers; and iii) that ‘push’ entrepreneurs have lower survival probabilities than ‘pull’ entrepreneurs. Preliminary results suggest that young workers have a disadvantage when entering self-employment because of their lack of experience in the labour market. Moreover, a possible selection bias arises since less qualified individuals have a greater probability of self-employment while their low qualification reduces their survival probability.

References

Amit, R. and Muller, E. (1995) “‘Push’ and ‘pull’ entrepreneurhip”, Journal of Small Business and Entrepreneurship, vol. 12(4), pp. 64-80.

Baptista, R. Karaöz, M. and Mendonça, J. (2014) “The impact of human capital on the early success of necessity versus opportunity-based entrepreneurs”. Small Business Economics, vol. 42(4), pp. 831-847.

Block, J. and Sandner, P. (2009) “Necessity and opportunity entrepreneurs and their duration in self-employment: evidence from German micro data”, Journal of Industrial Competition Trade, vol. 9, pp. 117-137.

Furdas, M. and Kohn, K. (2011) “Why is start-up survival lower among necessity entrepreneurs? A decomposition approach”. Available at: http://www.iza.org/conference_files/EntreRes2011/kohn_k2086.pdf

Giacomin, O., Janssen, F., Guyot, J.L. and Lohest, O. (2011) “Opportunity and/or necessity entrepreneurship? The impact of the socio-economic characteristics of entrepreneurs,” MPRA Paper 29506, University Library of Munich, Germany.

Reynolds, P.D., Camp, S.M., Bygrave, W.D., Autio, E. and Hay, M. (2001) Global Entrepreneurship Monitor. 2001 Summary Report. London: London Business School and Babson College.