From Unemployment to Entrepreneurship

07/11/2013-CHICAGO – It is well known that manufacturing employment has declined significantly
in the United States, owing to the rise of manufacturing in developing countries
like Mexico and China. But few recognize similar drops in other sectors, despite
such trends’ far-reaching economic, social, and political implications.

Since 1972, the number of telephone operators has fallen by 82%, typists by 80%,
secretaries by 60%, and bookkeepers by 50%. Moreover, during the Great Recession,
office and administrative jobs declined by 8%, production and craft jobs fell by
17%, and the number of positions for machine operators, fabricators, and laborers
dropped by 15%. Employment in all other occupations either remained unchanged or

Manufacturing occupations and administrative support used to employ millions. But
technological advances have enabled many of these middle-class jobs to be automated
or moved offshore – a process that is expected to accelerate with growing automation
of knowledge-based activities and advances in robotics.

In theory, workers can adapt to these changes by seeking employment in occupations
that include non-routine tasks, which cannot be computerized or robotized (at least
not in the foreseeable future). These include highly paid positions like managers
and technicians, as well as relatively low-paid jobs in protective and personal
services, food preparation, and cleaning, but few “middle-skill” occupations.

As a result, the labor market is becoming increasingly polarized – a trend that many
believe can be addressed with more and better education. But a substantial
proportion of cognitively capable people do not respond well to formal education
and, even for those who do, it is inadequate to provide the insider knowledge and
wide-ranging experience needed to adapt, much less innovate, in a dynamic labor
market. This shortcoming partly explains the prevalence of highly educated,
unemployed young people worldwide.

Providing workers more options to enhance their knowledge and skills would enable
them to capitalize on developing technologies, such as mobile Internet and social
media, not only by filling positions at existing companies, but also by launching
their own enterprises. Indeed, self-employment is an increasingly attractive option
for workers seeking some semblance of job security in an unpredictable and
challenging labor market.

Given entrepreneurship’s potential to drive innovation and GDP growth, supporting
such efforts is in everyone’s interest. But commercial banks are reluctant to
finance new ventures by unemployed workers with no collateral, making
entrepreneurship a difficult path of labor-market adjustment in developed and
developing countries alike.

In order to improve aspiring business owners’ prospects, some countries have begun
to offer start-up subsidies to unemployed workers, sometimes in lieu of unemployment
benefits. But, while such policies help to reduce unemployment, their impact is
subject to human-capital constraints, with many unemployed workers lacking the
knowledge, experience, or confidence needed to launch a new venture.

Given this, start-up subsidies should be combined with subsidized entrepreneurial
apprenticeships, like those that have provided training for masons, carpenters,
plumbers, and electricians for decades (and, in some cases, for centuries). Such
apprenticeships would help workers acquire the experience and know-how that they
need to take advantage of the opportunities afforded by technological progress.

For example, specialty-shop owners often find that doing business online is far more
profitable than operating a brick-and-mortar store, because online retail expands
the market for the knowledge contained in the products that they sell. Similarly,
the Internet is essential to the developing “sharing economy,” which includes
car-sharing providers like Zipcar and I-Go, and accommodation-rental services like
Airbnb and Zotel. Such sharing-oriented businesses increase the productivity of
existing capital, while creating new jobs for workers.

Initially, existing firms are likely to resist such apprenticeships, because
investing time and resources in temporary workers – if not potential competitors –
seems to conflict with their interests. Of course, once an apprenticeship program is
operational, the larger benefits implied by a more productive economy and lower
unemployment will become apparent. But getting there will require some convincing.

That is where governments come in. With effective subsidy programs, governments can
induce young, successful businesses that are exploiting recent developments in
information technology and related fields to take on entrepreneurial apprentices.
Selecting innovative new firms, rather than established companies in traditional
industries, is essential, not least because these are the firms that will provide
most of the future employment growth.

Furthermore, these businesses are best suited to provide the relevant knowledge and
experience for a start-up. And, in the case of a family-owned business seeking a new
proprietor, training an apprentice can be an effective way to pass on the relevant
knowledge, as well as the firm’s assets.

Apprenticeships would facilitate the integration of younger workers into the labor
force, while helping to correct skills mismatches among more experienced workers.
But an apprenticeship should not be confused with an unpaid internship. Indeed,
apprentices should be compensated at least at the minimum wage rate in a given

In addition to providing the funds for apprentices’ salaries, governments must
monitor progress to ensure that apprentices are gaining valuable knowledge and
experience. At the end of a successful apprenticeship, a start-up subsidy should be
available for aspiring entrepreneurs with good ideas and proven potential as
business owners.

In a dynamic and unpredictable labor market, workers must be ready for anything.
Apprenticeships could not only help to boost human capital, lower unemployment, and
increase labor productivity; they could also help to fuel the innovation and
entrepreneurial spirit that ultimately drive economic growth and development.

Dale Mortensen, a Nobel laureate in economics, is Board of Trustees Professor of
Economics at Northwestern University.

sourceProject Syndicate, 2013