“Entrepreneurship is expressed in more than one form. It can be found in all phases of the business life cycle, in the private and public sector, and in all countries across the globe.”
This quote from GEM member Jonathan Levie succinctly captures the full range of entrepreneurial activity that can occur in a individual economy. This holistic view of entrepreneurship even allows for the inclusion of employed workers as entrepreneurs when they develop or launch new goods or services; or, set up a new business unit, a new establishment or subsidiary. Taking into account this broad definition of entrepreneurship, GEM teams collect data on entrepreneurial workers to develop the Entrepreneurial Employee Activity (EEA) indicator. Each participating GEM team receives an EEA rate for their economy.
Pursuing entrepreneurship within an established firm makes sense if an individual wants to engage in an array of entrepreneurial opportunities while also minimizing personal risk. Established firms have the resources to acquire and act on new information; whether it is adopting new systems and technology, gathering customer data or investing in innovation. Very few entrepreneurs could afford to compete with these processes (Stam, 2015). This means entrepreneurial employees in established firms will have many opportunities to absorb new information and transform it into innovative goods and services, all while collecting a steady paycheck and benefits.
Perhaps not surprisingly, EEA rates are higher in high-income economies. This is because there are a greater number of innovative firms than in lower-income and less innovative economies. Additionally, it is comparatively more expensive to start a business in a high-income economy, making EEA all the more attractive.
One reality of EEA however is that it can crowd out new business opportunities for aspiring entrepreneurs. Therefore, when an economy has a high EEA it tends to result in a lower early-stage entrepreneurial rate (GEM’s TEA rate), particularly in Europe. Below is a chart of participating GEM economies with their EEA rates, compared to their TEA rates for 2018. The top 16 EEA rates are high-income countries:
High EEA rates paired with lower TEA rates is a common feature of European economies. Levie et al. make the case that this is due to “structural, regulatory and cultural factors,” that make independent entrepreneurship less attractive than employment-based entrepreneurship. Conversely, the United States and Canada have both high EEA and comparatively high TEA rates. This could be due to the two countries’ strong entrepreneurial culture. Both the US and Canada generally demonstrate higher rates of business opportunity identification and confidence in entrepreneurial skills.
Below is a chart demonstrating the difference between Canada, the United States and Western European economies for these cultural indicators. As is evident, the North American economies have a stronger entrepreneurial culture at the individual level.
If employment-based entrepreneurial activity is a major contributor to business development and innovation, particularly in high-income economies, then policy makers should also look at ways they can encourage this type of activity. This is not always an easy case to make when officials tend to view the total number of new businesses and individual startup success stories as the barometer for which to judge regional or national economic performance. Still, in order to stimulate overall entrepreneurship, which includes EEA, experts in this area recommend incentivizing R&D through tax reductions or prizes, encouraging more university and industry collaboration, improving entrepreneurial education both in schools and at the executive levels (Levie et al. 2016). When individuals have the opportunities and incentives to act entrepreneurially, whether that’s on their own or as part of a firm, they can increase the innovation and competitiveness of their economy.
Analysis by Forrest Wright (GEM Global Data Team)