What if the key to formality and inclusion was in the hands of youth? By promoting entrepreneurship, countries in ...
What if the key to formality and inclusion was in the hands of youth?
By promoting entrepreneurship, countries in Latin America may increase their human capital, reduce informality, tackle youth unemployment and lure foreign investments. Entrepreneurial millennials are socially responsible and want to live in a sustainable world.
Latin America is going through a real entrepreneurial revolution. Lots of youngsters from the main cities in the region are challenging the future.
If we take a deep look into the subject, we shall see that they are challenging the present. In my previous column, I claimed that Generation Y stands out due to its beliefs, goals and attitudes, which set it apart from previous generations. It does not trust the status quo. It aims to transform a reality that is elusive, unsolid, or liquid, in the words of Zygmunt Bauman.
The context for this generation is rough: youth unemployment remains high and youth labor informality is over 60%. Many of them want to create their own company and aspire for these organizations to be different. A large number of youngsters do not wish to work in traditional organizations. Others simply can’t.
Youth already represents one third of the workforce employed by the 500 largest firms in Latin America, and their participation in the labour market grows on a daily basis. They are quite demanding with the first jobs and professional practices.
As I have said before, young people are worried about non-renewable resources and climate change; the carbon and hydric footprints are part of their concerns. They believe in values linked to cooperation, socially sharing resources, communication technologies that reduce the cost of finding and making transactions among individuals in real time. Young people have found the models that enable them to act as a self-regulating community, by building reputations based on ratings developed by their most reliable sources: themselves.
But, what is going on in the current labour world?
The unemployment rate of advanced economies has gone down during the past few years, with a major drop in the United States and at a slower pace in the Eurozone. This trend is expected to continue. However, a rise of the unemployment rate is expected in emerging economies this year.
In Latin America, the estimated unemployment rate is close to 8%, over to 2 percentage points above the level of two years ago. This sudden increase is the result of the recession of large economies in the region, such as Brazil.
Both the IDB and the IMF point out that the link between growth and employment varies considerably in the countries of the region. The Okun Law shows us the estimated historical relation between employment and GDP growth. Therefore, in Brazil and Venezuela, a 1% increase of growth means a 0.2% decrease in the unemployment rate, while in Argentina the impact is around 0.1%. Consequently, countries’ GDP need to grow a lot to have an impact on employment.
Improving Latin American labour markets demands developing more solid growth and applying measures focused on removing barriers for employment creation in the private sector. The amount of barriers is directly proportional to the amount of amazing opportunities the region offers.
Experts estimate that the countries in the region could create 14 to 23 million well paid jobs by 2018. The sine qua non conditions is that employers must find candidates with the skills required. A lot of creativity and intelligence must be used to increase human capital quickly, promote investment and enable the creation of new companies.
When we analyse the quality of employment, we can see that there are at least 130 million people working under informal conditions in Latin America. ILO’s data show that among 20% of the highest income population, informality affects 30% of people. Meanwhile, among the 20% of the population with the lowest incomes, 73.4% work in informality.
According to ILO, “the cost of enabling informality is visible: it perpetuates poverty, increase inequity, limits productivity, damages economic growth, and challenges democratic governance”.
Clearly, working on the scarcity of informality can strongly enhance growth with inclusion. Control mechanisms are inefficient and policies on the subject have not delivered the expected results and have not been linked to reality.
What is the main entrance door to the labour market for youth? Private employment agencies. Do these agencies have support in the region? In most countries, they do not. Furthermore, most countries do not even call them that, as they have not ratified ILO’s Convention 181 on Private Employment Agencies. What does the Convention promote? That public employment services work together with private employment agencies in order to improve training based on demand during transitions and efficient labour intermediation. Public employment services should also contribute to entrepreneurial talent and these firms can collaborate in such development. Is there another tool that can reduce youth unemployment, tackle informality and promote economic growth? Indeed: methodical and systematic support and promotion to entrepreneurship can achieve that.
Therefore, the next question to ask is: how are we doing in terms of entrepreneurship?
Well, the situation is neither great nor terrible. Promoting entrepreneurship means betting on a dynamic and inclusive economy and creating an ecosystem were entrepreneurial talent finds support and new companies or startups have access to smart capital in its different forms: angel investments, seed and entrepreneurial capital. Sustained support from startup to scale up and small company with impact on employment.
During the past few years, entrepreneurial culture has grown exponentially in the region. In several countries, the figure of the entrepreneur has gained recognition and universities and intermediate organizations have made space for entrepreneurial education. There are many disruptive projects driven by young Latin American talents.
Incubators, accelerators, angel investors’ networks and investment funds are contributing to increase the access of these entrepreneurs to financing and social capital through investors and mentors. According to estimations, there are 21 angel investors’ networks and 300 seed and entrepreneur seed capital funds. However, there are countries that are not in the radar of investors yet and other countries are too focused on entrepreneurs in their capitals, while they do not take into account entrepreneurial talent in smaller or remote cities.
In 2014, PRODEM with the support of FOMIN developed the Index of Systemic Conditions for Dynamic Entrepreneurship (ICSEd1), an analysis tool that enables a diagnosis about the dynamic entrepreneurial conditions in 54 countries across the world -15 of which are Latin American-, which are classified in a regional and international ranking. The index is the result of PRODEM’s research and projects developed for over a decade with the support of international organizations, governments and key institutions of the region. The index was based on the OECD’s best practices for index developments. What does it show? Chile, the top country in the regional ranking, is number 26 in the international ranking. Latin America’s position in the ranking, estimated by the average of each of its countries, would be N°41. There is a long way to go.
What do young entrepreneurs demand?
Young entrepreneurs have to develop their innovative business in the rigid Latin American labour markets.
A very interesting fact is that millennials think and develop their businesses showing social responsibility and compliance. They demand to have differential costs to achieve it and more flexibility, which a concept of work associated to the 21st century.
Some countries of the region have noticed this and have started working on specific laws for entrepreneurs.
For instance, Argentina is working on a bill to include the creation of a new type of company, called Simplified Actions (SAS). This type of company could be created online in 24 hours and have a single partner. It could have a temporary address and pay its employees with shares that are tax excluded. The trial period for this type of companies would go from 3 months to 12 months.
As regards financing, this Law would enable the National Agency of Social Security (ANSES) to deliver a percentage of its annual income to investment in order to provide liquidity to Entrepreneurial Capital Entities. It also considers crowdfunding and would include the concept of “Digital Proformas” (pre invoices) and send them to clients so they can process payment without generating tax credit or debit. Until the client does not pay, no tax can be charged, which prevents the client being financed by the startup and the State being paid for a concept that has not been charged yet. If, after 120 days, the non-paid proforma becomes an invoice, and the startup pays corresponding taxes, the client cannot take tax credit until the invoice is paid.
Finally, the bill considers sustainable companies, which are those companies that “without forsaking profit through production or exchange of goods or services, its primary object is to solve social and/or environmental problems and have a positive impact on those areas for the community.”
These are initiatives that aim to support the fourth industrial revolution and transform reality.
It would be interesting to listen to those who play the leading role in the new economy. They might have the key to generate employment opportunities for those they trust the most: their peers.
About Martin Padulla
Founder and Managing Director of staffingamericalatina. Martin Padulla is Sociologist (USAL), MBA (UCA) and labour markets expert. He published “Flexible Work in South America” and “Regulatory framework for private employment agencies in Latin America” two books about the new realities of work in Latin America.
mpadulla@staffingamericalatina.com
About staffingamericalatina
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Produce and spread contents, researches and developments about issues such us Employability, Youth Employment, Training for Employment, Decent Work, Private Employment Agencies, Active policies for employment, Teleworking, Public and private actions for the creation of decent work, Green Jobs and Corporate Social Responsibility.
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