The Readiness for Entrepreneurship Training Project

The name of project is the “Readiness for Entrepreneurship (RE)”. The RE program helps the targeted people who are unemployed, and are interested in starting a business at the local level (for cities or counties). Once applicants are selected by objective criterion, the admitted applicants are eligible to get education of specific skills for six months or one year. The period of training will be depending on the area of establishment. In addition, the applicants may have financial supports after the education and interviews. Also, there is a strict condition when they start a new business: they should open a business within their administrative boundary (at least within in the neighboring counties).

Several conditions will be considerable for selection.

Age

Schooling/education

Periods of unemployment

Experience in the previous workplace

Startup experience

2. What are benefits and costs of the project?

Obviously, selected applicants will benefit from the RE program. They will have an opportunity to have enough knowledge and skills before they have their own businesses. Moreover, if they are qualified to get financial support from the local government, it should be easier to start a business.

Meanwhile, local inhabitants who should pay tax may be dissatisfied. Since the local budget is limited, budget for supporting the unemployed can bring a budget cut in other public service areas. However, it might be possible to apply federal subsidies for local economic development.

3. Relevant articles and evidences

According to Acs (2006), there are two kinds of entrepreneurship: necessity entrepreneurship and opportunity entrepreneurship. Necessity entrepreneurship has no option, except to be an entrepreneur. Unemployment might be one of the reasons to be a necessity entrepreneur. In contrast, opportunity entrepreneurship is the result from recognizing opportunities. Based on the Global Entrepreneurship Monitor (GEM) database, he concludes that all entrepreneurship does not contribute to economic development. Necessity entrepreneurship is not helpful for economic growth, while opportunity entrepreneurship can drive economic development. Thus, economic growth is determined by the ratio of necessity entrepreneurship and opportunity entrepreneurship.

Following his argument, if unemployed people start new businesses, the phenomenon is considered as necessity entrepreneurship. It can be inferred that there is a highly positive relationship between necessity entrepreneurship (self-employment) and a number of unemployed. As the “supply push” effect of unemployment, Koellinger & Thurik (2012) find that rising unemployment can cause new start-up activities. By using the Granger causality analysis, they conclude that “entrepreneurship is often an escape route for people who have lost their jobs to make a living” (Koellinger & Thurik, 2012: 1149).

It is not surprising that there is empirical evidence showing that necessity entrepreneurship is hard to success. Necessity entrepreneurship and people who experience a long-term unemployment tend to be considerably less satisfied with their businesses (Block & Koellinger, 2009). The low satisfaction can be explained by motivation (aspiration) and the decision process itself. In particular, the authors specifically explain the reasons: necessity entrepreneurship usually lost an opportunity of free will, and it leads to low satisfaction.

Hence, it is reasonable to expect that if unemployed people have an opportunity to prepare their startups through learning relevant skills and knowledge from the program, the probability to success will be higher.

4. An illustrative diagram of the proposed project

As shown in the Figure 1, it can be illustrated with the flow. At the first stage, there are two different types of unemployed applicants. If some of unemployed people pass the qualification of program, the selected people have a chance to be prepared by the training and financial supports from local governments. As a result, it is believed that people who are educated can increase the probability to success. Success includes survival, pecuniary performance, and job satisfaction. If certified agents of the RE program can create economic outputs, it will lead economic growth of the city or county. As mentioned earlier, since the location is limited to the corresponding area, it can boost local economy with new establishments.

It is expected that the RE program will be useful to preventing business closes. The logic behind the idea is that they can prepare their business during the education period and get the opportunity to decide. However, several points to be considered. The first one is that closing a business is not always bad. Though one purpose of the program is to decrease the rate of exit, their experience will be one type of knowledge and lesson from the failure. In this sense, preventing close or exit is not perfectly desirable. Also, if unproductive small businesses close, it might bring an increase of efficiency as a whole economy.

In addition, this program is only for unemployed or dismissed people from previous workplace. Among the applicants, a priority of the program candidate is for people who lost their job. Even if there are young people who are unemployed after high school graduate in the U.S., it can be argued that young people need more job experience. Instead of staring a new business just after graduate a school, it might be recommendable having job experience first.

Lastly, the regulation of opening location might have a negative effect. It can be inferred that some industry where clusters are specialized, the administrative boundary can be differ from their living areas. In this case, it can play as regulative costs. Based on tradition wisdom, opening location can be flexible, but it should not be other states or too distant locations.