7 SELF-EMPLOYMENT PROGRAMMES FOR THE UNEMPLOYED IN THE CASE-STUDY STATES: EVALUATION WITH ELFS DATA
7.1 Introduction: self-employment programmes in four countries
In this Chapter, we report in broad detail the characteristics of the main self-employment programmes for the unemployed in the four EC states which we have chosen for more detailed case-study analysis in the present research. We then go on to consider the possibilities of using the "quasi-flow" data we have constructed from the ELFS to begin to compare the performance of self-employment schemes for the unemployed across countries.
The principles involved here are illustrated in chapter 5 above. The programmes are:
• the Enterprise Allowance Scheme in the United Kingdom;
• Uberbrtickunsgeld, or "bridging allowance" (under paragraph 55a of the Arbeitsforderungsgesetz) in Germany;
• Ivcerkscetterydelsen (Enterprise Allowance Scheme) in Denmark;
• L'aide aux chomeurs createurs d'entreprises (ACCRE) or "assistance for unemployed entrepreneurs" in France.
As well as confining our analysis to four countries (Germany, France, the UK and Denmark), we look at the personal characteristics of scheme participants (for reasons of data availability we concentrate on gender and age), and the characteristics of the businesses they set up under the scheme (as indicated by industrial sector).
Previous evaluations of these programmes have compared the characteristics of the scheme participants with those of the self-employed as a whole. The important advantages offered by
the ELFS data are, however, twofold.
Firstly they enable us to compare the characteristics of scheme participants with those of other new entrants to employment, and more particularly with those who are entering self-employment from unself-employment Without such a comparison, it is impossible to conclude that the programmes are influencing the types of unemployed people who would otherwise become self-employed. Thus in the case of EAS in the UK, much has been made of the supposed "under-representation" of women in the early years of the programme (compared with their representation in the self-employed stock), and the continual increase in the proportion of women on the programme (from about ten to over thirty per cent) has been hailed as bringing the programme "into balance" in this respect. Thus Owens and Demery 1988 note that by 1987, 26 per cent of participants were female, and that "Information from the 1987 Labour Force Survey indicates that 25.4% of the self-employed are women. This is almost identical to the proportion of women on EAS - suggesting that the imbalance noted in earlier surveys has now been redressed" (Owens and Demery 1988 p.6). Far from this being an "imbalance", however, a comparison with flow (rather than stock) data shows (see Table 7.2 below) that in the early years of the programme the proportion of women on EAS
was similar to that in the overall flow from unemployment to self-employment. Indeed as a result of the increasing proportion of women in the programme, women are (since 1986) considerably over-represented in EAS compared with their representation in the overall flow.
Secondly they enable us to compare scheme performance across countries, taking account of the different underlying structure of self-employment flows in those countries. Thus, if we find, for example, that the proportion of scheme participants in manufacturing sectors in higher in Germany than France, this does not necessarily imply that the German scheme is more successful than the French in encouraging/supporting the self-employed to set up in manufacturing, since we also need to take account of the different proportions of the overall flow from unemployment to self-employment who enter manufacturing in the two countries.
Before setting out the results of these comparisons, however, it is worth briefly describing the programmes themselves. These are summarised in Table 7.1 below (see also Barker 1989 and OECD 1990(1). The key differences are the relatively large scale of the UK and French programmes; the fact that the French programme is a capital grant, whilst all the others are income subsidies; the initial targeting of the Danish scheme on the long-term unemployed (subsequently widened); the wide eligibility of the UK scheme, and (until 1987) the French scheme, as against the German scheme which requires greater scrutiny of the businesses in question. Of the three allowance-based schemes, the UK allowance is the smallest in financial terms (the maximum an individual could receive under the programme was a total of 3,016 ECU in 1988) and the Danish the largest (the maximum receipt was 23,800 ECU in 1988);
whilst the German scheme although involving a larger monthly payment than the UK scheme, had considerably shorter duration (maximum 6 months). The maximum grant available under the French scheme (5,800 ECU) was close in value to the full (3.5 years) allowance in the
Danish case.
7.2 Scheme performance: participants' characteristics
Table 7.2 compares the gender distribution of participants in the scheme with those of the self-employment stock and the inflows to self-employment in the countries in question. The most pertinent comparison is between the overall inflow to self-employment from unemployment (as revealed by the ELFS data), and the characteristics of scheme participants.
The British scheme shows the most remarkable growth in the proportion of female participants over the period (from 15 per cent in the first full year of the scheme's operation, to 36 per cent in 1989). This would appear to be in part the result of a deliberate policy emphasis to encourage unemployed women to participate in the programme, following a perception that they were initially "under-represented" (although as suggested above, when the comparison is made with the aggregate inflow from unemployment, this perception was probably wrong'^). This increasing share of women on the EAS, whilst apparently successful
^ Thisdoes notimply thatthe British scheme was "gender neuhal" in any sense- it is clearthat
women are under-represented in self-employment in general, among new entrants to self-employment and among scheme participants. The point is that the scheme does not appear to perform significantly
"worse" than the market in this sense, and indeed in recent years it appears to perform slightly better (ie women were slightly less under-represented among scheme participants than they were among the aggregate fiow fiom unemployment to self-employment).
in targeting a group disadvantaged in terms of access to the means of setting up a business, and therefore reducing likely deadweight under the scheme, does not seem to have been at the expense of survival rates (although EAS evaluation studies show that survival rates of women were considerably lower than those of men - partly because they tended to set up different types of business than their male counterparts - overall survival rates rose slightly
over the period as the proportion of women on the scheme increased, probably as a result of
the generally improving UK economic situation in the late 1980s).Table 7.1: Summary of self-employment schemes for the unemployed in four EC member states
Germany France UK Denmark
Name of scheme Oberbrtlchaigsgeld Aide aux chSmears cr&ueurs d'entreprises
Enterprise Allowance Scheme Ivarksalleryddsea
Date introduced 1986 1979/80 1983 1985
Eligibility Registered unemployed
Ail receiving or entitled to unemployment benefits (recently extended to include recipients of other welfare benefits).
Unen^loyed for at least 8 weeks and receiving unemploymentAiqiplementary benefit (tamiiy credit). From 1991 limit reduced to 6 weeks, and local Training and Enterprise Councils (TECs) have discretion on rules.'
Long-term unemployed over 25 (unemployed at least 21 nunths and had 1 statutory
"job offer"). Revised 1989 to include LTU under 25 (12 months unemployment and 1 "job offer"), and others with at least 5 months unemployment.
f^rm of support Monthly allowance Capital grant Weekly allowance Monthly allowance Rate of payment Equivalent to previous
benefit entitlement
Flat rate of £40 per week.
From 1991, Individual TECs to a ceiling of DKr.54,000 P-a.)
One-off payment Up to 52 weeks. From 1991 TECs have discretion to vary payment period (from 26 to 66 weeks)
Must have £1,000 own capital.
Must work for at least 36
hours per week. New business
must be the whole investment.
Some "unsuitable* business activities excluded. From 1991 TE(^ can vary criteria, e.g. to require approved business plan.
No specific restrictionson applicants, or type of business. No own capital requirements.
Support mechanisms None tied to scheme, but participants eligible for wide range of support through chambers of
commerce etc.
None tied to scheme, but participants eligible for normal state-funded business advice etc
"Awareness day" prior to entry. Participants visited at least once by officials in year.
Option of 3 free business counseiiing sessions in year. Survival rales Not available, but of
scheme participants in 1987, some 8% were unemployed by May 1988. Figure for 1988 participants was 6%.
After 1 year about 85%
still hading. After 2 years 75%. Highest survival in
construction and
manufacturing, lowest in commerclai services.
Of those who complete 12 months on the scheme, about 3/4 survive a furtlier 6 months, and al>out 2/3 survive a further 2 years.
About 76% of starters in 1989 were in business 2 years later. Earlier studies show that about 29% of participants do not survive the 3.5 years of eligibility.
The Danish scheme also exhibits a considerable over-representation of women in comparison with the aggregate inflow to self-employment This results, in turn, from the over-representation of women in the programme's target group of long-term unemployed, and it is notable that the proportion of women in the programme fell significantly following the widening of the eligibility criteria in 1989. Women are under-represented among the self-employed to a far greater extent in Denmark than in the other countries (only around 15 per cent of Danish self-employed are women), and it seems, therefore that this initial targeting of the Danish scheme on disadvantaged groups involved relatively low deadweight. This is confirmed by evaluation data from surveys of early participants in the Danish programme {Rosdahl (£ Meerkedahl 1987) which show that only 17 per cent of participants would definitely have set up in self-employment without the scheme. A further 39 per cent said that they might perhaps have done so without the scheme, but this nevertheless leaves 44 per cent who clearly would not have done so, a much higher proportion than is typically recorded, for example, by surveys of EAS participants in the UK (between 14 and 34 per cent - see PACEC 1990).
Of the other two schemes, we note that the proportion of participants in the French scheme who are women is generally rather similar to the overall female share of new entrants to self-employment. The German programme, on the other hand, stands out as containing a considerable under-representation of women. This is likely to reflect the rather more stringent entry criteria of the German programme: business viability must be assessed by a "competent authority", and must be shown to generate a relatively high initial monthly income for the scheme participant. This latter criterion, in particular, is likely to discriminate against female applicants; the UK evaluation data show that female EAS participants are much more likely than male participants to enter low margin, highly competitive service sector activities such as hairdressing and beauty and other personal services. Many of these kinds of activities are likely to be ruled out in the German case by the income requirements. A priori, we would anticipate that these restrictions would be likely to result in the German scheme having relatively high levels of deadweight but also high survival rates. In practice, as discussed above (section 12), the available evidence does not suggest that the German scheme has higher deadweight than its counterparts in other countries (it seems to be lower than in the UK case, and closer to the Danish levels), although the data on re-entry to unemployment following the scheme (about 6-8 per cent) are consistent with the prediction of high survival rates. It is as yet unclear why the German scheme might exhibit such low levels of deadweight, but one possible explanation may lie in the tapering of the payment eligibility according to duration of unemployment - thus in 1988 to obtain the full duration of 26 weeks
OberbrUckungsgeld payments, the applicant had to have been unemployed for at least 6
months (in 1989 this was extended to 12 months and subsequently to 18 months - see Kaiser and Otto 1990). If one assumes that the unemployed most likely to set up in business on their own without a subsidy are more likely to do so in the early months of unemployment, tapering the programme in this way may help reduce the deadweight element. Thus it would seem that the design of the German programme, viz giving greater weight to longer-term unemployed, whilst imposing relatively strict criteria for the viability and income potential of the proposed business, may increase survival rates (and possibly also reduce displacement -see below), without increasing deadweight unduly, albeit at the expense of discouraging women from participating in the scheme.Table 12\ gender compositiCHi of self-employment, self-employment flows, and scheme participants
% female share of:
self-employed
stock
inflow to
self-employment
inflow to
self-employment from unemployment
participants in self-employment scheme for the unemployed*
UK Enterprise Allowance
Schetne
1982-3 23.6 32.7 11.8 7.0
1983^ 24.0 34.0 17.7 14.6
1984-5 25.0 35.8 19.2 19.1
1985-6 22.5
1986-7 25.1 34.8 20.8 24.7
1987-8 24.8 32.8 18.5 30.3
1988-9 26.7 33.1 21.3 35.8
Germany VberbrUckungsgeld
1982-3 22.5 31.6
1983-4 232 Average (1982-5): 39.5
1984-5 22.6 34.7
19.2
1986-7 23.5 36.2 21.0
1987-8 23.9 34.6 Average (1986-9): 29.1 22.4
1988-9 24.1 37.0 22.3
France L'aide aux chdmeurs
criateurs d'entreprises
1982-3 21.1 39.1 19.1
1983-4 21.0 34.4 Average (1982-4): 19.3
1984-5 21.2 39.1 30.1
1985-6 21.0
1986-7 22.3 37.1 21.2 21.7
1987-8 22.8 34.6 16.5 23.0
1988-9 24.0 40.8 22.0 24.0
Continued overleaf
Table 7.2 continued
E>enmaik Ivterkscetterydelsen
1982-3 12.4
1983-4 15.9 Avge (82-5): 35.4
1984-5 14.9 50
1985-6 Avge (82-89): 33.8 55
1986-7 14.8 58
1987-8 12.9 Avge (86-9): 29.2 63
1988-9 14.8 46
* data on the composition of programme participants arc derived from administrative records, and in some cases foUow-up surveys of participants (in the UK's case they are average estimates from several data sources for each year)
Sources: ELFS for aggregate slock and flow data.
For programme participants: UK: Allen & Hunn; 1985; Allen 1987; Owens 1989; Wood 1985; Simkin &
Allen 1988; RBL 1987; Hunn 1984; MSG 1983; Paulson & Demery 1988; Marston & Paulson 1989;
Smith & TremleU 1990; Owens Demery 1988; Germany: lAB 1989 and 1991; Kaiser <4 Ouo 1990;
France: Mlnlstire du Travail 1991; Dossou 1988; Bulletin Mensuel des Statlstlques du Travail 1989;
Putot 1989; Folquis 1985; Denmark: Rosdahl & Markedahl 1987; Kjerkegaard udvalget 1989;
H0gelund et. al. 1992
Table 7.3 goes on to look at the age composition of scheme participants and self-employment flows. Previous discussions of such programmes (see eg the discussion of the French and British schemes in Barker 1989) have tended to emphasise that young people (under 25) are under-represented in these programmes compared with their representation in the unemployed workforce, and that given the lower survival rates of younger participants in the scheme, they are even more under-represented among scheme survivors. Comparison with the age composition of self-employment, however, shows that in all four countries, young people are actually over-represented compared with their share of self-employment, but that when we look at the aggregate inflow from unemployment to self-employment, its age structure is in most cases rather similar to the age structure of scheme participants. In none of the countries, therefore, is there any clear evidence that the programmes are shifting the age balance of the types of people who enter self-employment from unemployment. The only exception to this is the Danish case, where under-35 year olds are under-represented among scheme participants. This, however, mainly results from the programme initially being open only to the over-25's, and the fact that the long-term unemployed target group contains relatively small proportions of younger people.
Table 7.3: age composition of self-employment, self-employment flows, and scheme participants (%)
Age self-employed stock
inflow to self-employment
inflow to self-employment from
unemployment
Participants in self-employmentscheine for the unemployed
GERMANY 1983 1989 1983-5 1987-9 1983-5 1987-9 Age 1986 1988 1989
under 25 1.8 2.4 11.3 10.2 (12.9) 10.3
25-34 15.8 16.8 30.2 29.3 47.1 43.3 < 30 28.5 32.2 24.4
35-44 27.9 26.4 23.5 24.5 22.0 27.4
45-54 28.8 30.4 20.7 22.2 15.4 14.6 30 + 71J 67.8 75.6
55+ 25.7 24.0 14.3 13.7 (2.7) (4J)
FRANCE 1983 1989 1983-5 1987-9 1983-5 1987-9 Age 1986 1989
under 25 2.5 2.5 10.9 9.9 16.1 11.4 under 14.5
25
11.5
25-34 19.9 19.0 31.0 29.7 45.7 37J
35-44 24.0 19.4 22.0 26.1 24.0 35.0 25-49 80.6 83.1
45-54 27J 25.4 15J 14.8 11.4 I2J
55+ 26.1 23.6 20.6 19.3 2.7 3J 50+ 4.7 5.1
UK 1983 1989 1983-5 1987-9 1983-5 1987-9 1983-6* 1987-9*
under 25 6.9 9.0 20.3 22.9 21.6 20.6 19.7 18.6
25-34 22.3 24.0 32.3 32.4 31.3 34.0 32.4 35.3
35-44 29.4 28.1 25.6 24.8 25.9 24.7 23.4 24.4
45-54 21.8 22.0 12.7 12JS 15.7 13.9 17.1 14.4
55+ 19.6 16.9 9.2 7.6 15.6 6.7 7.8 7.3
DENMARK 1983 1989 1983-5 1987-9 1983-89 1985-6 1989
under 34 16J 16.9 54.3 53.7 67.8 42.1 40
35+ 83.6 83.1 45.7 46.3 32.2 57.9 61
* note that the UK data are averages of the age structure of participantsover the period in question, derived from several data
s o u r c e s
Sources: as table 7.2 above
7.3 Scheme performance: activities of participants
Finally, in table 7.4 we examine the kinds of businesses which were set up by scheme participants in the four countries, and compare these with the activities of the newly self-employed in general, and the newly self-self-employed who were previously unself-employed in particular. Looking first at the UK, the features of the businesses set up by HAS participants which stand out are firstly the relative overrepresentation of certain service sector activities -especially the "other services" category which includes a wide range of small scale personal service activities, and to a lesser extent the distribution, hotels and catering category. These findings are broadly consistent with the expectation that the EAS, being an incomerather than capital subsidy, involving a relatively small weekly payment, and having few eligibility
conditions'', would have a relatively high proportion of participants entering small scale service sector activities, with few barriers to entry and requiring little in the way of initial financial or human capital. It is interesting to note that service sector activities where such barriers/requirements may have been higher (including business services, and transport and communications) were not over-represented among EAS participants. The evidence is not unambiguously in accord with prior expectation here, however, since it does not appear that the main manufacturing sectors (where EAS participants might be expected to be somewhat disadvantaged) are systematically under-represented amongEAS participants, when compared with the overall inflow to self-employment, and the inflow from unemployment in particular.
The sector which is most under-represented among EAS participants is construction, which accounts for around 15 per cent of EAS participants as against 25-30 per cent of the overall inflow to self-employment from unemployment. Self-employment apparently grew strongly in the UK construction sector in the 198Gs, and the present finding is consistent with the argument put forward in previous work (see Meager 1991), that much of the newly self-employed construction workforce was in fact a form of "disguised employment", reflecting the growth of "labour only" subcontracting in the industiy, and the convenience of the self-employed label for tax and employment law purposes. If much of the inflow from unemployment to self-employment in construction was of this type, it is to be expected that this will not be reflected among EAS participants, since much of this type of self-employment would not meet the eligibility conditions of the scheme (see Evans and Lewis 1989 for an account of relevant developments in the UK construction industry in the 1980s).
Turning to the German scheme, which as we have argued is similar in conception to the EAS, but with more stringent entry requirements (in terms of proving business viability, and income generation potential), we find a very different picture. Service sector and agricultural activities are considerably under-represented among OberbrUckungsgeld recipients, and manufacturing activities are over-represented, in comparison with the aggregate inflow to self-employment from unemployment. Table 7.4 shows (see also the discussion in Meager 1992c) that manufacturing activities account for a much higher proportion of self-employment stocks, and of inflows to self-employment in Germany than in most other EC countries. The table also shows that the unemployed may be disadvantaged in entering such activities, since the representation of manufacturing in the flow from unemployment is rather lower (this is broadly consistent with the institutional features of the German situation discussed in Meager, Kaiser and Dietrich 1992 and in Chapter 1 above). It seems, therefore, that the payment of
OberbrUckungsgeld may go some way to redress that imbalance, with its (in comparison with
the UK) relatively generous support, coupled with stricter scrutiny of eligible businesses. ItTurning to the German scheme, which as we have argued is similar in conception to the EAS, but with more stringent entry requirements (in terms of proving business viability, and income generation potential), we find a very different picture. Service sector and agricultural activities are considerably under-represented among OberbrUckungsgeld recipients, and manufacturing activities are over-represented, in comparison with the aggregate inflow to self-employment from unemployment. Table 7.4 shows (see also the discussion in Meager 1992c) that manufacturing activities account for a much higher proportion of self-employment stocks, and of inflows to self-employment in Germany than in most other EC countries. The table also shows that the unemployed may be disadvantaged in entering such activities, since the representation of manufacturing in the flow from unemployment is rather lower (this is broadly consistent with the institutional features of the German situation discussed in Meager, Kaiser and Dietrich 1992 and in Chapter 1 above). It seems, therefore, that the payment of