Promoting entrepeneurship and self employment across Europe

On 08-09 November 2010, DG Employment, Social Affairs and Equal Opportunities (DG EMPL) of the European Commission hosted its autumn seminar of the Mutual Learning Programme. The purpose of the seminar was to bring together Member State officials, social partners and other stakeholders to consider the role of self-employment in the labour market in promoting entrepreneurship and job creation, including its contribution to achieving more growth and more and better jobs in the context of EU 2020. The concept of entrepreneurship is frequently referred to in this new strategy. Likewise, the strategy's flagship initiative on new skills and jobs calls on Member States to remove measures that discourage self-employment, while ensuring not to promote involuntary or precarious self-employment. It also refers to self-employment and entrepreneurship in terms of access to education systems and mobility programmes promoting entrepreneurship and innovation among the youth.

The role of self-employment in the labour market

Following a welcome by Xavier Prats Monné, Director, DG Employment, Social Affairs and Equal Opportunities, two keynote speakers, Dr, Petri Rouvinen (Research director at ETLA (Research Institute of the Finnish Economy) and Antonella Baldassarini (Head of Unit at Istat (Italian National Institute of Statistics) set out their views on the motivations for and impact of movements into and out of self-employment (Dr. Rouvinen) and the boundary between self-employment and vulnerable work, informal contracts and undeclared work (Antonella Baldassarini).

Dr. Petri Rouvinen’s presentation firstly drew the distinction between self-employment and entrepreneurship, arguing that overlap between the two categories was minimal. Dr. Rouvinen indicated that the decision to enter into self- employment is the outcome of a lengthy forward-looking selection process. Entry only takes place if its perceived net benefits are sufficiently greater than other alternatives. He then argued that although the entry into self-employment is quite common, this entry is often followed for many by a relatively rapid exit, with less than half of such ventures surviving beyond three years. Although it appears from the statistics that those in self employment earn less than their waged counterparts, he argued that such differences largely disappear when personal characteristics (skill levels etc) are taken into account. Dr Rouvinen argued that the relatively low success rate of entries into self employment could be explained by the fact that Europeans tend to select negatively into (and possibly out-of) self-employment. A recent analysis indicates that this selection is mostly involuntary, and that for highly educated men, brief self-employment spells are often unemployment in disguise. In his view, the primary problem in Europe is that entrepreneurship is not considered to be an attractive career option for its best and brightest individuals. There is some indication that entrepreneurship/self-employment in Europe has been on the increase partly for the wrong reasons, that is, people have been pushed to self-employment due to malfunctioning labour markets and perceived inflexibilities at the margins. He warned of the dangers in focusing only in increasing the number of self-employed and not enough on quality of such self-employment. Dr. Rouvinen considered that promoting entrepreneurship on the basis of strong innovative ideas should be the focal point of economic policy and could be supported by active labour market policy.

Antonella Baldassarini pointed out that self-employment is characterised by a high degree of heterogeneity which has been growing in recent years. The official data generally do not provide differentiated statistics on self-employment and do not provide detailed information on income.  Additionally, the increasing number of multiple job holders and part-time self employed individuals, also make it difficult to obtain a reliable number of self-employed individuals.

The lack of reliable data makes it difficult to identify how much of the recently created self-employed is demand-side-driven and how much is supply-side-driven. She expressed a particular concern about the rise in “false” self-employment, which is declared as such (largely for the benefit of the employer and their ability to avoid payment of certain tax and social security contributions) while the individual largely remains dependent on a single employer for their source of income. At the same time, self-employment was considered to offer a good opportunity for young people to enter the labour market, as well as generally allowing individuals to develop their ideas as a business and to have the opportunity to more readily combine work and family life.

Antonella Baldassarini concluded that the challenge for the future is that of encouraging self-employment by promoting the following different actions: 1) to regulate access to credit and liquidity; 2) to encourage formation and investments in the human capital of self-employed; 3) to discourage the use of self-employed jobs as a means of reducing production costs; 4) to reduce involuntary or precarious self-employment (with appropriate access to social security support);  and 5) to encourage intrapreneurship, that is the development of an independent job within a company with the objective of introducing innovation to revitalise and diversify its business.

An overview on self-employment across Europe and views of social partners

Self-employment plays a very significant part in the EU labour market, as elsewhere in the global economy. Both self-employment and entrepreneurship in general, have a particular role in job creation; as such, they are key to the success of the EU 2020 Strategy. Frédéric Lagneaux from DG Employment, Social Affairs and Equal Opportunities provided some facts and figures on self-employment at EU level, highlighting the recent trends –including through the crisis- in self-employment numbers, as well as the profile and motivations of those workers. Dr. Tina Weber presented the key messages from the Thematic Report on Self-Employment prepared by the European Employment Observatory illustrated by national examples. Her presentation outlined main policy approaches in relation to access to finance; advice and support; reduction of administrative burdens; easing the path towards the recruitment of additional workers and measures targeting specific groups.

This was complemented by contributions from Mr. Werner Buelen, Political Secretary Construction, European Federation of Building and Woodworkers (EFBWW) and Mr. Luc Hendrickx - Director for Competitiveness of Enterprises at the secretariat of The European Association of Craft, Small and Medium-sized Enterprises (UEAPME). Mr. Buelen explained that during recent years, there has been an increase of self-employed workers in the industry, partly due to organisational and economic developments in the construction sector. The distinction between self-employed workers and employees has important fiscal, social and economic consequences. The European Social Partners in the construction industry have jointly acknowledged the importance of recognising genuine self-employment and preventing and combating bogus self-employment. They advocate a more coherent policy, comprising a mix of preventative and punitive measures to protect workers and the competiveness of the genuine self-employed. These suggested measures are contained in the Joint paper of the European social partners of the Construction industry on the topic of self-employment and false-employment.

Mr. Hendrickx stressed that the existing negative perception self-employed must be tackled and the image of entrepreneurs in society must be restored, without hiding the fact that reality can be difficult at times. It is also important to teach about entrepreneurship from the early stages of education in order to make it an attractive career path. However, success depends on personal skills but also on aspirations, so the focus should be on people who have the potential to create a business. They must be coached, informed and trained. Mr Hendrickx also spoke on the issue of “false self-employed” workers, which cannot be neglected but must not become an excuse to over regulate or to apply the same legislation to employees and to the self-employed.

Learning from best practice in the national context

Germany has a long tradition in supporting start-ups, including those created by formerly unemployed people. Dr. Udo Brixy started his contribution briefly outlining the history of support to start-ups in Germany .The pathways to promote business creation –methodologies, main players, profile of beneficiaries were also explored, along with the evaluation of those schemes. According to Dr. Brixy, the different measures have had a positive effect but there is a danger of deadweight effects as they seem to work better in areas where employment rates are generally already high. Conversely, in areas with a weaker labour market, there is much lower take-up of subsidies. These differences need to be taken into account in the design of policies; as evidence shows that the same active labour market policy will not have the same effects in all regions. He highlighted that the level of investment required from the Public Employment Services to support a start-up was relatively low, but that control group experiments had shown that compared with other active labour market policy measures, the likelihood of unemployment after a period of time following the granting of such support was lower for start-up measures. Having said that he indicated that there are currently numerous programmes on different scales and they sometimes lack clear focus, thus raising questions regarding their efficiency.

Sandrine Gineste presented the 'ambivalent' attitude towards self-employment still prevalent in France that explained why the French government promoted some significant measures in recent months –partly due to the crisis- to support business creation and self-employment. Mrs. Gineste also presented the law on the "modernisation of the economy", with a focus on the 'auto-entrepreneur scheme', the 'new support for business creation or recovery' (NACRE) and, the 'new status of the individual enterprise with limited responsibility' (EIRL).  Mrs. Gineste concluded that the 'auto-entrepreneur’ status appears to have made self-employment more accessible to all. Self-employment can be seen as a potential route into employment even if some abuses exist. She argued that self-employment should be made more secure in order to reduce the gap between employees and the self-employed. Significant efforts have been made in this direction in France, for example towards ensuring social security coverage for self-employed individuals.

Dr. Zsombor Cseres-Gergely focused on the support schemes designed for SMEs as a whole –including micro-finance tools-, and subsidy schemes for registered unemployed individuals to support self-employment. Dr. Cseres-Gergely also presented some key findings on transitions to and from self-employment and the quality of self-employment jobs. In his view, self-employment is a more volatile form of employment, more vulnerable to economic and labour market problems than salaried employment. Improving self-employment will therefore require a more stable economic environment; a shift from subsidised financing to capacity development, a reduction of the administrative burden and labour costs, an increased focus on flexicurity; fostering lifelong learning and better research and evaluation.

Mr. Juan José Barrera Cerezal, Director General for Social Economy, Self employment and CSR, Ministry of Labour and Immigration in Spain presented the Charter for Rights of Self-employed People, developed by the Spanish government after consultation with social partner organisations. The goal of the charter is to begin to harmonise the rights of self-employed workers with those of employed individuals. One of the ways this is being done is by creating an insurance funding, which self-employed individuals contribute to and which assist them in cases of unemployment or bankruptcy. It also provides greater legal security for individuals who are heavily dependent in their work on only one employer.

Reflections and comments – focusing on the middle – and long-term challenges and opportunities

Carole de Vergnies, Advisor for SME's policy in the cabinet of the Belgian Minister for SME's and Self-Employed, representing the Belgian EU Council Presidency, outlined the Plan for SMEs launched in October 2008 in the wake of the EU Small Business Act. This Plan focuses in particular on improving access to finance to facilitate the creation of new enterprises. To improve the status of the self-employed, minimum social security benefits (e.g. regarding pensions, healthcare, etc.) have been harmonised with those of employees. A number of specific measures have also been taken in the context of the crisis to help SMES, for instance the reporting of social contributions or the extension of insurance in case of bankruptcy. Furthermore, an important axis of the Belgium plan is to improve the efficiency of public administration, by applying more systematically the principle ’Think Small First’ among authorities at all levels, creating one-stop-shop services and speeding up payments to suppliers.

From the perspective of the Employment Committee, its chair Bruno Coquet emphasised that the primary objective of self-employment was to create growth, and not only employment opportunities. It was therefore particularly important to combine economic and labour market policy initiatives to create an environment in which entrepreneurship can prosper in a sustainable fashion. He highlighted access to finance and the reduction in administrative burdens as a particularly important focus of policy to support entrepreneurship. Similarly, training needed to become more readily available for self-employment individuals and should include entrepreneurship education in schools.