Youth Entrepreneurship in Canada Blog #17

19, November 2018 – Blog #17

Youth Entrepreneurship in Canada.

Highly educated entrepreneurs see it as a good career choice.

The recently released Global Entrepreneurship Monitor report on Youth Entrepreneurship shows that youth entrepreneurship is alive and well in Canada. The Global Entrepreneurship Monitor (GEM) is the largest study of entrepreneurship in the world.

Highlights from the report include:

  • Canadian Youth see entrepreneurship as good career choice and associate it with high status. Over 60% of Canadian youth saw entrepreneurship as a good career choice, and having high status, and three quarters saw it as having high status. Most also saw it portrayed positively in the media.
  • They feel confident that they have the skills and experience needed to start a business. More than half felt they had the skills and experience need to start  a business, although around 40% expressed a fear of failure. However this is about 10% less than expressed by the 18-64 age group. However, we found in other GEM reports than the experts are quite skeptical of these views.
  • They want greater independence. There has been a pronounced shift in the last 4 years to increase the fraction of youth entrepreneurs who seek greater independence, rather than to increase income. More than twice as many of the youth entrepreneurs we interviewed valued independence more than increased income.
  • They are highly educated. Over 60% of youth entrepreneurs have a post-secondary degree, while among the youngest youth entrepreneurs (ages 18-24) 16% have post graduate experience. This compares with 54% of the 18-64 age group in Canada who have a post-secondary qualification.
  • Consumer services form the largest share of youth entrepreneur’s ventures. It is typical of most reports on entrepreneurship that consumer services are the largest single business category. There are low barriers to entry and frequently a relatively low need for capital to get started. 45% of youth entrepreneurs’ ventures are for consumer services, 32% for business services and 20% for manufacturing.
  • Personal savings is the primary source of funding. 58% of youth entrepreneurs funded their ventures with personal savings, 19% by bank loans and 9% from family. The median value of the investment to start their business was $268,214.
  • There is a gender gap, as female youth exhibit less confidence and a higher fear of failure than their male counterparts.
  • The overall entrepreneurship rate for youth is slightly lower than the Canadian population. In 2016 14.1 % of youth were involved in entrepreneurial activity, compared with 16.7% of the total 18-64 population. This is perhaps not surprising as generally people need to accumulate money and experience before starting a business.
  • An increasing number of Youth are running established businesses. In GEM, an established business is one that has been around for 3.5 years. The number of these headed by Youth has risen quite rapidly in the last four years.
  • Ontario and Alberta are hubs of youth entrepreneurship. The rate of youth entrepreneurship varies quite a bit across Canada. Highest rates are found in Ontario, Alberta and Quebec, while lower rates are found in Newfoundland, New Brunswick and PEI.

The full report is available at www.gemcanada.org – look under 2017 (when the data was collected).

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

 


Measuring Entrepreneurship- Lies, damn lies and statistics. Blog #16

7, June 2018 – Blog #16

Measuring Entrepreneurship – Lies, damn lies and statistics.

British Prime Minister Benjamin Disraeli is reputed to have said that there were “three kinds of lies – lies, damn lies and statistics” as a sort of tongue in cheek way of advising caution when interpreting numbers.  A case in point is entrepreneurship statistics.

Entrepreneurship is falling
There have been a series of reports in Canada (and around the industrialized world) deploring the decline of entrepreneurship. A recent one from the Fraser Institute compares the rate of entrepreneurship in a number of countries in the periods 2001-2007 and 2008-2014.  For Canada the decline was 8.5%, for the US 18.6%, for Britain 7.5% and or Australia 20.3%. A long article in Forbes Magazine has the title ”Why US Entrepreneurship is dying.” It quotes reports from the National Bureau of Economic Research showing that start up activity has been slowing down in the US for three decades. A recent article in Aspire Canada has the title “ Is Canadian Entrepreneurship Vanishing?”

Various explanations for this decline have been put forward. The Forbes article places the blame on large student loans, making potential entrepreneurs more risk averse.  A recent article in the Globe and Mail believes that demographics is to blame – the aging of the population and decline of the number of potential entrepreneurs in the prime age group of late 20’s to early 40’s. Another explanation is the lack of equity funding compared with the US.

Entrepreneurship is rising

On the other hand, data from the Global Entrepreneurship Monitor – the world’s largest study of entrepreneurship, tells a different story. In Canada, for example, the rate of entrepreneurship (measured as the TEA Index of total early stage entrepreneurship activity) has increased from an average of 8.6 (for 2002-2006) to 15.1 (for 2013-2017), almost doubling. In the US the numbers have gone from 11.2 (average of 2002-2006) to 12.9 (average of 2013-2017).  That’s not such a big increase as Canada, but it’s definitely not a decline. Australia shows a similar increase  from 11.9 (average for 2003-2006)  to 13.2 (average for 2014-2017).

What’s going on?
The first thing to note is that the two groups are looking at different sources for their data.  The “falling” group looks at company registrations, where a new company has been formed.  The “rising”  group look at actual activities, what percentages of the adult population are actually involved in entrepreneurial activity, whether the activity is part of a registered company or not.

But what could be behind this?  A very likely explanation is the gig economy. A report by Randstat Canada (the largest staffing company in Canada) says that 30% of the Canadian workforce is already in “non-traditional” jobs, including part time work, temporary work, contract work, and freelance work, self-employed or unpaid work. This number has increased significantly in recent years, and is expected to rise to 45% by 2020 according to Intuit Canada. A report from Ryerson University found that over 50% of all new Canadian jobs involve “non-standard” work arrangements. Very similar numbers are predicted for the US.

One of the problems with dealing with this issue is the lack of an accepted terminology. Many almost similar terms are used, including gig economy, sharing economy, digital platform economy, and others. The Organization of Economic Cooperation and Development (OECD) has resorted by defining non-traditional work arrangements by what it is NOT – “It is not full time, dependable employment with a  contract of indefinite duration.”

There is a theoretical underpinning to this change. Ronald Coase won the Nobel Prize in economics by explaining that firms exist to minimize transaction costs.  It was cheaper for General Motors (for example) to assemble all the materials to make a car than to contract with others to do the same thing. That was then. Now the computer revolution has made it much easier and cheaper for firms to do work by contracting with freelancers, and outsourcing significant parts of their activities.  Also, it is easier for people to find work using apps such as Uber, Airbnb, Handy and TaskRabbit that trying to find full time employment. And perhaps they value the flexibility as well.

Conclusion
It looks very likely that we will see further increase in entrepreneurial activity in Canada. It remains to be seen how much of this is done through registered companies and how much of it is done on a freelance or sole proprietorship basis.