John Earls (Head of Research at Unite the Union)
Dr Maria Abreu (Land Economy, University of Cambridge)
Dr Brendan Burchell (Sociology, University of Cambridge)
Informal-sector entrepreneurship among vulnerable groups
The informal economy makes up a substantial share of the UK’s GDP (estimated to be around 10-13%) and includes day labourers, employees on informal contracts, and informal-sector entrepreneurs running their own business. Working in the informal sector can be beneficial in the short run, helping people bridge gaps in formal employment, or adapt to crisis situations such as illness or job loss. It also allows for flexibility in exploring business avenues, building skills or acquiring equipment and assets. This is particularly the case for vulnerable groups such as single parents constrained to working from home, or recent immigrants or refugees with uncertain legal status. This phenomenon mirrors (to some extent) the experience of the so-called “necessitydriven entrepreneurs” living on the periphery of cities in less developed countries. However, while there are benefits to working in the informal sector, there are also negative consequences that arise in the medium and long term, such as exclusion from the welfare system through a lack of contributions, and a lack of recourse to labour legislation. Remaining in the informal sector also constrains business growth, and the formalisation process is costly and bureaucratic. While much of the policy focus has been on promoting formalisation and policing tax evation, the appropriate response may depend on the nature of the work, and on the motives (of choices made under existing constraints) of working in the informal economy. I will discuss recent work on informal sector entrepreneurs in London and Brazil, their motivations for starting and/or remaining in the informal sector, their attitudes to risk, the constraints that they face, and the outcomes for their enterprises.
Self-Employment as a solution to unemployment for young people, or pushing young people into precarious jobs?
The recurrent economic crises over the past 10 years have re-focussed attention on youth unemployment. Evidence has been accumulating that many active labour market programmes (ALMPs) have been effective in providing a route out of unemployment for participating young people. Entrepreneurship has also been heralded as a way to promote economic expansion and recovery, leading to a new set of ALMPs to encourage unemployed youths to start businesses.
This paper is critical of this policy for a number of reasons.
- The important distinction between self-employment and entrepreneurship is ignored or misunderstood.
- The ALMPs to promote self-employment seem to be more unreliable than ALMPs that are designed to lead to salaried employment.
- Self-employed jobs, both in Europe and in less developed countries are often poor quality jobs with bad working conditions and low pay.
- Rather than leading to the learning of new skills (or ‘Human Capital’) and thus better jobs, there is little evidence that self-employment is associated with an upward career trajectory or with an escape from poverty.
- Rather than progressing onto good jobs in the formal sector, self-employment in developing countries traps young people in a cycle between being self-employed and being an unpaid family worker.
- For young people from family backgrounds or regions where self-employment is the norm, breaking out of that cage to become an employee is more entrepreneurial than following others into self-employment.
These critiques of self-employment challenge the orthodox view that entrepreneurship is virtuous and therefore self-employment should be promoted. The analysis of a survey of over 100,000 young people’s lives and employment histories supports these critiques. I will argue that we need to rethink the whole discourse around entrepreneurship, which has been hijacked by a neoliberal agenda. We also need to rethink quantitative research methods for studying labour markets, which are poorly suited to developing a deep understanding of the complex phenomenon of self-employment, which is characterised by thick family and business networks. Otherwise we will subject vulnerable young people to precarious work with little protection from regulation or safety nets.