How many of the million “new” entrepreneurs will be able to keep going for the long haul?

Since 2010, nearly 1 million new entrepreneurs have joined the industry, CBS recently calculated. Will these entrepreneurs be able to keep going for the long haul? And what else does this “figure of the week” tell us about the economy and the labor market? We asked Maarten Lafeber, macroeconomist and senior strategist at APG. 

What strikes you about this growth?
“In 2010, there were 1.5 million entrepreneurs; now that number has grown to 2.5 million. That’s a massive increase of over 66 percent. At the time, the population growth rate was 6 percent, so it can by no means be attributed to that. But what kind of entrepreneurs are we really talking about? CBS data shows that by far the largest group, about 900,000, are sole proprietors. The largest group of these, around 440,000, is active in business services. This is followed by construction, especially cable laying, which is badly needed in the energy transition. And then there are about 200,000 sole proprietors active in health care. There also appears to be a huge increase in self-employment in the beverage industry. When you sit down in a sidewalk cafe and see the wide variety of beers on the menu there, you get an idea of who this is all about: self-employed entrepreneurs who are starting their own brewery in their garage, so to speak.”

Why has self-employment skyrocketed, specifically in recent years?
“Several factors come into play. For example, the ongoing tight labor market means that labor, and thus also self-employment, is in high demand, which lowers the threshold for entrepreneurship. And self-employment can be advantageous over salaried employment. Many self-employed people in the health sector were often initially employees, but they were not satisfied with their pay and schedule, for example. When they get hired as contractors, they get better pay and they can schedule their own time. In addition, during and after the Covid pandemic, there was a big increase in the number of self-employed people. People were sitting at home and had the time to start their own businesses. Plus, the rapid increase in digitalization led to a lower threshold for doing business online. An important side note to this figure, however, is that there is a lot of false self-employment: entrepreneurs who are self-employed on paper, but in practice work for the same employer via a zero-hours contract. There have now been several court rulings to combat this. This may explain why the number of permanent contracts is increasing, at the expense of the number of flex contracts.”

Entrepreneurship appears to be especially popular among the young and old. What is the reason for this?

“Among older people, the increased state pension age is one reason, which causes self-employed workers to stay active longer. Another cause may be that an employee goes into a kind of pre-pension, and is self-employed for the last two or three years until he is eligible for the state pension. That way you have more flexibility and possibly more income. Then there is another group that finds out that the pension they have accrued is not sufficient, and therefore they have to keep working for longer. This is often not an option as an employee, but you can do it if you’re self-employed. A factor for young people is that the digital sector, in the broadest sense of the word, has grown enormously. They are above average in that sector, building websites or developing an app, for example. In addition, this generation does not consider the prospect of working for the same employer for a long time to be ideal. Some of them therefore opt for more flexible (independent) entrepreneurship. And where in the past you needed capital to start a business, today, in many cases, all you need is a laptop. That makes entrepreneurship more accessible.”

And is it known how many of the start-up entrepreneurs are able to survive in the long run?
“If you look at the inflow and outflow of new businesses per year, it shows that for every two businesses started, one quits. If this ratio continues in infinity, 50 percent of the number of entrepreneurs will make it. This seems to be confirmed by CBS figures on the group of entrepreneurs who started in 2013. Of these, half quit after five years. Not entirely surprisingly, the outflow of self-employed people is the largest. The larger a business becomes, the less likely it is to cease to exist in the foreseeable future. By the way, a business shutting down sounds negative, but you can also say that it is part of entrepreneurship and a healthy economy. Read any book by a successful entrepreneur and it will tell you that their first eight attempts to start a business failed. It may involve great personal suffering for the entrepreneur in question, of course, but it is healthy for the economy as a whole when so-called zombie businesses cease to exist. After all, they add little to economic growth, so it is better if their capital and labor flow to a productive enterprise. This characterizes a dynamic and efficient economy.”