Encourage them to run? The wisdom of teaching unemployed beneficiaries self-employment skills

March 19, 2013

In a recent post, Dr Cardow criticised Paula Bennett’s employment training programmes for unemployed beneficiaries. Given “the absence of employment opportunities that is at the core of the problem” he suggested the Minister for Social Welfare should “stop training people for employment and start teaching people how to turn themselves into their own bosses”. Such suggestions are not new. In fact, programmes designed to assist unemployment beneficiaries set up in business have been tried in many different countries. There are presently a series of state-sponsored ‘SEAPS’ (Self Employment Assistance Programmes) running in a number of US states, specifically for carefully selected workers recently made redundant, who exhibit high levels of drive and an interest in becoming self-employed.

However, the problem is not, as Dr Cardow suggests, that Paula Bennett has failed to set up such schemes. The problem is that even such carefully constructed schemes as the US SEAPs have rather somewhat mixed outcomes. With the right, carefully selected, candidate they may assist the move into self-employment (see Bharadwaj Falcone, & Osborne, 2004, Creating Entrepreneurs From the Unemployed) . However, it is possible such individuals would have made this transition without assistance in any event. Conversely, if run badly such programmes can make an unemployed individual’s unenviable situation even worse, particularly schemes that encourage participants to take on personal debt in order to fund their start-ups. Given the reluctance of banks to lend to any small businesses these days, unemployed participants may have few other options.

Tellingly, a study published many years ago by Massey University staff specifically considered the question of “pathways” into self-employment in New Zealand (McGregor & Tweed, 1998 “Unemployment to self-employment: The long and winding road”). Of a random survey of 1500 New Zealand SME owners who had survived long enough to pay for a listing in the Yellow pages, only 75 (5.2%) indicated they had been unemployed at any point in the three years preceding their start-up. A third of this group reported they were in employment at the time they started their business. Indeed, only 17 people out of the 1500 surveyed indicated they had been unemployed for most of the three years prior to starting their business. Again almost half this group of 75 reported business turnover of less than $50,000 pa, suggesting that many would have had “take-home” profit less than the minimum wage.

In short, the New Zealand survey suggests only one in a hundred self-employed people transition unaided directly from a significant period of unemployment to ‘successful’ self-employment. For 99% of entrepreneurs, self-employment is preceded by employment.  In a finding echoed in the US study above, McGregor and Tweed conclude  “Our results suggest that short-term unemployed, who can gain knowledge and skills in paid employment which they can subsequently utilise in self-employment, are more likely to start their own businesses than those who are unable, for one reason or another, to use a period of paid employment as a springboard”. In other words, the evidence suggests long-term unemployed individuals struggle to jump straight into successful self-employment, and the best option may be to transition them through a period of employment to learn the skills and make the contacts needed for self-employment. In short, for the long-term unemployed self-employment may need to be proceeded by a period of employment.

To conclude, ‘the unemployed’ are a group of people with varying back stories, skills sets and motivations. No one scheme will work for all of them all the time. There may be a place for Self-employment Assistance Schemes for recently redundant workers with entrepreneurial interests along the lines of those used in the US. However to suggest the government should “stop training people for employment and start teaching people how to turn themselves into their own bosses” oversimplifies the problem, particularly for those who have been without work for some time. The long term solution to reducing the unemployment rate lies in the government assisting employers to grow and encouraging them to take on more local staff, trained with the right skills. It’s true Paula Bennett’s work-experience programme based on call-centres won’t solve the entire problem of unemployment. However, neither will training the unemployed in business skills and wishing them well. Indeed, given the on-going demand for call centre staff Ms Bennett’s programme may be ultimately more successful in transitioning unemployed beneficiaries into paid work than any equivalently funded self-employment training schemes would be in transitioning beneficiaries into self-employment. It would be an interesting comparison.

Andrew Barney, A.R.Barney@massey.ac.nz



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The Other Side of Business

Welcome to The Other Side of Business. This is a blog that collects and distributes the opinion and analysis of staff and students from the School of Management, College of Business, Massey University. The aim is to post once or twice a month on current issues in business... Read more