Lack of funding hinders entrepreneurship

Work activity in agriculture has been decreasing steadily since December 1996. The sudden rise 4th quarter 2000 4th quarter 2001 is explained by the introduction of Romania and Poland into the Eurostat work activity series. Romania’s weight is considerable as over a third of its labor market was employed in agriculture. Despite this, the 4 period average has been moving down and 4th quarter 2009 stood at 5.4%.

Industry reveals a similar trend, where the work activity rate has fallen from 28.4% 4th quarter 1996 to 24.1% 4th quarter 2009. There is a sharp drop 3rd quarter 2008 to 4th quarter 2009 that can be explained by a sudden boost in services, where the rate moves from 68.7% to 70.5% during the same interval. 4th quarter 1996, work activity in services was 63.7%.

Self employment has suffered greatly despite research carried out by the European Commission showing that “[a]lmost half (45%) of the European citizens want to be their own bosses if they could.” (quoted from the article above)

Isolating agriculture clearly demonstrates the effect of Eastern Europe (notably Romania and Poland) on overall work activity rates. The rate for that region shoots up from 11.8% 4th quarter 2000 to 17.1% 4th quarter 2001, but at year-end 2009 has sunk to 9.4%. There has been a slight increase in Southern Europe since 4th quarter 2008 but still the rate has dropped from 11.0% 1996 to 6.8% 2009 which is still above the agricultural average of 5.4%.

The change in the Nordic and Baltic region is pronounced. In 1996, 9.5% of the labor force was listed as working in the agricultural sector but in 2009 it had shrunk to 4.9% which is far below the average. The Big 3 have seen little change since 1996 and so has Central Europe. Both of these are considerably below the average or at 2.4% and 3.5% respectively.

Isolating industry reveals a slight drop across the line but nowhere near as pronounced as with agriculture. The Eastern Europe has changed from 36.1% 1996 31.8%, Southern Europe from 28.8% to 23.6%, and Nordic and Baltics from 26.7% to 23.9%. The average rate has gone from 28.4% to 24.1%.

The Big 3 and Central Europe are far below the average at 20.9% and 20.5% respecitively and have been below since 1996. 4th quarter 2009 shows that Central Europe has gone below the Big 3 for the first time since 4th quarter 2000 where they were even at 24.0%. Prior to that, industrial work activity was lower in Central Europe.

Isolating self-employment brings Eastern Europe and Southern Europe to the forefront. With an average rate of 14.3%, Eastern Europe stands at 18.7% and Southern Europe at 18.8% while Central Europe measures 14.0%, the Big 3 a meager 10.9%, and the Nordic and Baltics 8.9%. This suggests that the framework and support for sole entrepreneurship is either lacking or that the prospects of having fixed employment is more profitable. A likely cause is the service sector which includes financial institutions.

Isolating the service sector shows how much weight has been placed on services, particularly by the Big 3 and Central Europe where the work activity rate measures 76.7% and 71.2% while the average is at 70.5%. The problem here is that services do not generate tangible value as does agriculture and industry, but provides additional value that nets a higher price. Increased automation in agriculture demands less workers to generate same output levels, and industry tends to cannibalize itself by developing systems to replace workers (such as robots). The question is whether this will be sustainable in the long-term.

With 2/3 of the EU population occupied in the service sector, where is real tangible worth created and to what extent? The Nordic and Baltics have seen an increase from 63.8% to 71.2% in the services work activity rate between 1996 and 2009, Southern Europe 60.2% to 69.6%, and Eastern Europe 52.1% to 58.8%. What happens when all these regions have 2/3 of their labor force occupied with services? The service sector typically consists of firms that are interlocked in chains. If one link breaks, many of them will fold. The most recent example is that when the banks failed, a wave of service bankruptcies followed as each bank fueled (sustained) an entire network of service companies.

There may be overconfidence in the service sector that must be researched, for there is much to suggest that overemphasis on services, although the sector may boost profitability, may be fragile and too dependent on a few key enterprises that, if they collapse, will raise unemployment levels to new heights.

EU Work Activity