Social firms come out on top in job creation!

It is known that the entry and growth of new firms contribute a large share of job creation in most countries. Social venture start-ups, however, are mostly cherished for their ability to alleviate social problems – their role in job creation has not really been considered. In a new study, Habib Kachlami together with ACE professors Per Davidsson and Martin Obschonka take a look at this issue, following an established method for tracking direct and indirect job creation effects over time for commercial start-ups.

The findings show that the average job creation effect per firm is larger for social start-ups and for their commercial counterparts. This may seem counter-intuitive, especially as social firms can rely on volunteers. However, the researchers suggest several plausible reasons for the findings. Importantly, most ‘commercial’ start-ups represent individuals choosing self-employment. Many have no ambition to grow and take on employees, and they often operate in crowded markets with little room for growth, anyway. A small number of high-growth firms among the commercial category does not raise the average to high levels, partly because they outcompete or acquire some of their peers.

By contrast, social ventures address underserved ‘markets’ of social problems. This creates room for growth without pushing out other social ventures. Further, being passionate about solving as much of ‘their’ social issue as they possibly can, social entrepreneurs are motivated to grow. Sometimes creating employment—for example for disadvantaged groups—is part of their social mission. In addition, lower costs due to tax breaks and partial reliance on volunteers give social firms a growth advantage over commercial firms offering competing products or services.

The commercial firm sector is much larger than the social sector, so total job creation is greater in the former even if the contribution per start-up is greater in the latter. The study compared social and commercial start-ups in Sweden from 1990 to 2014 and their job creation effects up to eight years after they entered the market. Similar comparisons for Australia or other countries do not yet exist. However, total employment in the social sector has grown recently in other countries, and the above reasons for the results would seem valid for other countries and time periods, too.

Read the full article:  The Regional Employment Effects of New Social Firm Entry

Written by Professor Per Davidsson – Australian Centre for Entrepreneurship Research at the QUT Business School