Who survives in self-employment?

Eric Meyermans*

7/10/2015 – Promoting self-employment and entrepreneurship has a strong potential to create jobs, strengthen the EU’s innovation capacity and give unemployed and disadvantaged people an opportunity to fully participate in society and the economy (provided they get the necessary support to make the transition).

However, surviving as a self-employed is not straightforward in an ever changing world.

For example, 2012 data shows that the probability that a self-employed person survives in the business after 5 years varies greatly across Member States. Survival rates are highest in Sweden and Belgium and lowest in Lithuania and Portugal.

Note: number of enterprises in the reference period (t) newly born in t-5 having survived to t divided by the number of enterprise births in t-5

Available evidence suggests that personal and household characteristics can have an important impact on survival in self-employment as they have a direct impact on a person’s motivation, ability, effort and risk-taking. For example, more years of education as well as learning more about one’s business before starting may increase significantly survival prospects.

Women’s self-employed survival is adversely affected by their more limited access to capital than men. Self-employment survival is also strongly related to the possibility of combining professional life with household responsibilities. For persons who became self-employed because no alternative (other than unemployment) was available, the likelihood to survive increases significantly if the venture is connected with previous professional expertise.

A person’s social capital in the form of networks can make also an important contribution to business survival.

Industry specific characteristics are also important. In emerging industries (such as new high-technology product) survival can be strengthened as start-ups have more leeway to experiment and can benefit from the expansion of the industry. Spin-offs within an industry seem to have a stronger survival rate – especially when knowledge is embodied in human rather than physical capital.

Institutional settings, such as adequate business development services can have a direct impact on the survival of a business as better counselling can help inexperienced starters to avoid entry mistakes.

Finally, self-employed and small businesses are more likely to survive and expand their activities in a stable macro-economic environment (when effective aggregate demand is high).

Author: Eric Meyermans works as a socio-economic analyst in the Social Analysis unit of DG EMPL.

Source: ec.europa.eu/social/main.jsp