What are the drivers of business demography and employment in the countries of the European Union?

ABSTRACT

The aim of this contribution is to establish a typology of European entrepreneurship countries with respect to variables related to entrepreneurial activity and economic development. Using a combination of multidimensional data analyses allows us to extend the concept of ‘entrepreneurial regimes’ and leads to the distinction of five such entrepreneurial regimes. Moreover, in order to better characterize these classes, a wide set of illustrative variables representative of national economic development, labour market functioning, and formal and informal institutional environments, as well as variables specific to the entrepreneurial population, are considered. Finally, discriminant analyses show that the five explanatory themes considered (Innovation, Employment, Formal Institutions, Entrepreneurship and Governance) differentiate the classes, and significantly explain the diversity of entrepreneurial regimes. These findings have important implications for the implementation of public policy, in order to promote entrepreneurial activity and reduce unemployment.

KEYWORDS:

• Entrepreneurship
• Data analysis methods
• Entrepreneurial regimes
• Employment

JEL CLASSIFICATION:

• L26
• C38
• O10
• O52

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Erkki Liikanen, Member of the European Commission responsible for enterprise and the information society, wrote in 2003: ‘Europe suffers from an entrepreneurship deficit in comparison to the USA’. According to the Sapir report (An Agenda for a Growing Europe, 2004), entrepreneurship and especially innovative company creation appeared as an important means of implementing the Lisbon Strategy (2000), to strengthen innovation and growth in Europe and to build ‘the most competitive and dynamic knowledge-driven economy by 2010’.

² Aghion also highlights the concentration of resources in the economy of knowledge, support for innovative firms, support for employees who leave their jobs and increasing competition in the market for goods and services.

³ GEM studies also point out the importance of tax and social benefits attached to employment status in comparison with independent status. In the case of France, this type of regime was not very favourable to entrepreneurship until new legislation on ‘auto-entrepreneurs’ appeared at the beginning of 2009. Success was instant: over 600,000 auto-entrepreneurs were registered in 2009 and 2010. The self-creation of an activity has become an important intention of work for youth. It also, unfortunately, often stems from the lack of employment opportunities in existing businesses. More than 900,000 people registered in August 2013, although for a large part of these new entrepreneurs it was more to complement income related to paid employment or a pension supplement (less than 50% were economically active and declaring a positive turnover).

⁴ The sunk cost is a notion of industrial organization that expresses the fact that certain investments, once they are made, lose any residual value if the object of investment is not used for what it was designed. By extending this concept to human capital, we show that certain types of education (labelled ‘Grandes écoles’, see below) do not encourage risk-taking on the part of graduates because of the sunk cost if graduates deviate from their classical trajectory of career.

⁵ An entrepreneurial failure does not necessarily lead to bankruptcy – such an outcome is, rather, the exception. It is more the idea that if a company does not give the expected returns then the entrepreneur has to return to a waged position.

⁶ Things are changing, however, with a recent effort by the government for the creation of innovative companies and the research tax credit (‘crédit d’impôt recherche’) that makes ‘France one of the countries that supports the most their innovative companies’, S. Distinguin, La Croix, 6 January 2016.

⁷ Reducing need-based entrepreneurship in favour of opportunistic entrepreneurship requires profound institutional and socio-economic changes, especially in the CEECs. Rodríguez-Pose (2017) shows that in addition to the traditional factors of growth (human capital, physical capital, innovation (i.e. opportunity entrepreneurship) and infrastructure levels, among others), the quality of institutions is crucial. Since the 2009s crisis, institutions are changing, they are improving, and improvements concerning the quality of institutions explain growth at the regional level.

⁸ The Total early-stage Entrepreneurial Activity (TEA) rate is defined as the percentage of individuals aged 18–64 who are either actively involved in creating a business or running a business for less than 42 months.

⁹ Generalised Ward’s Criteria, i.e. aggregation based on the criterion of the loss of minimal inertia.

¹⁰ See appendix.

¹¹ This variable is a product of two variables; Regulation: Effectiveness of anti-monopoly policy, answering to the question: ‘In your country, how effective are anti-monopoly policies at ensuring fair competition? [1 = not effective at all; 7 = extremely effective]’ and Market Dominance: ‘Corporate activity in your country is (1 = dominated by a few business groups, 7 = spread among many firms)’.

¹² The DA is based on the normality of populations. The discriminant functions are linear if the matrices of variances and covariances of these populations are equal; otherwise, they are quadratic. All these conditions of application have been checked.

¹³ Note that, the Wilks’ lambda is an indicator that allows one to statistically evaluate whether the model as a whole is significantly discriminating. Its value ranges from 0 to 1. The closer it is to 0, the more the model is discriminant and the more the classes are distinct. The closer it tends to 1, the more the classes are confused and not separable, i.e. there is no discrimination. The Wilks statistic can be approximated by a Fisher law.

¹⁴ The overall rate of misclassification is given to judge the predictive quality of the model.

¹⁵ The Corruption Perceptions Index (CPI) – NOCOR – measures the perceived level of public-sector corruption in a country. ‘The CPI is a “survey of surveys”, based on 13 different expert and business surveys’. Firm-level technology absorption capability (TABSO): ‘Companies in your country are (1 = not able to absorb new technology, 7 = aggressive in absorbing new technology)’.

¹⁶ Global Entrepreneurship Development Index. Thanks to Laslo Szerb for providing us with the variables of the new Global Entrepreneurship Index (GEI) which is based on the review paper by Acs and Szerb (2016). It is an improvement of the GEDI-Global Entrepreneurship and Development Index. This global index reflects a country’s ability to promote quality entrepreneurship, which is a factor of growth and employment.