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What do firm closures during COVID-19 mean for entrepreneurial recovery?

RSA Blog
RSA Blog Europe

This blog was written for the RSA Blog Student Summer Series that will highlight graduate student success in regional studies across the globe throughout the summer. 


Exiting the intense stages of pandemic restrictions will be seen as a welcome sight around Europe. Societies, individuals, and economies are positioned to benefit as we envision a post-COVID-19 era. Although exiting intense lockdowns presents its own host of new challenges. The COVID-19 pandemic has damaged significant elements of society and the economy and policymakers all over the world now will be asking themselves ‘how do we best pursue our recovery?’. This post seeks to shed some light on European initiatives regarding the recovery movement for entrepreneurship and employment in European regions based on new research which has recently been selected by the Journal of Regional Studies Regional Science as part of their Early Career Papers Section and is currently under review.


The research examines the role of push-factor or necessity-based entrepreneurship across European regions. This is a type of entrepreneurship which occurs due to an individual’s desire to escape their poor economic circumstances e.g., if people cannot find a job, they will become self-employed instead. Given the significant pressures which firms across Europe have faced as a result of COVID-19, it is clear to see how this type of entrepreneurship may play a key role in Europe’s entrepreneurial future. This relationship has been observed several times before in research when periods of high unemployment were found to induce greater levels of future entrepreneurship.


Policy and entrepreneurship

While this process is an incredible illustration of the market’s ability to change and cope with issues, it has been used as evidence to suggest that this free-market process is a kind of panacea to unemployment issues implicitly implying that policy, like the EU Cohesion Policy and ERDF policy, is not essential, or that essential, to the recovery process of entrepreneurship. The preliminary findings of new research at the Spatial and Regional Economics Research Centre in Cork University Business School indicates that this is not exactly the case and that policy for entrepreneurial recovery will mater.

The results do not indicate that push-factor or necessity-based entrepreneurship does not exist, on the contrary, they show it does exist, but only in certain demographics of the population.

The push-factor effect appears to be present for young (15-24-year olds) and senior (65-74-year olds) individuals, but not in the demographic which makes up the majority of the active population in the economy, adult individuals (25-64-year olds). In fact, the opposite effect is found for this demographic, unemployment appears to negatively affect future rates of adult self-employment.

The reason the effect appears present only in the case of youths and senior citizens is most likely attributable to the more salient difficulties these individuals face in finding employment after being made redundant. Young people are not as likely to have qualifications, skills, or experience in as great abundance as their older counterparts; and while more elderly citizens may have more skills and experience, they are more subject to age discrimination by employers due to them being closer to retirement age. Adults meanwhile are in a bit of a sweet spot where they will have more experience and skills than younger individuals but also appear a safer long-term investment to employers than their more senior counterparts.


Role of entrepreneurs in the economy

This finding is important for two main reasons. Firstly, it advances our current stock of knowledge on the push-factor entrepreneurship relationship and shows us that entrepreneurial tendencies don’t just vary across regional boundaries, but also across demographics. Secondly, it validates current European policy initiatives which are concerned with helping preserve and support entrepreneurship and employment during this COVID-19 recovery period e.g., European job retention schemes.

Entrepreneurs are a bit like fuel for the economic engine. They engage in investment, provide employment, and produce products for consumption and exportation. All of these things will be needed for economies to recover but we now know that the push-factor motivation of the market may not be enough to increase rates of entrepreneurship amongst certain demographics in Europe and get the recovery going. Therefore, entrepreneurial and employment recovery initiatives can be viewed as instrumental in getting European regions on the road to recovery. To quote the great economic geographer Paul Krugman, this is not about stimulus, this is about disaster relief.



Daragh O’Leary (Twitter @daragh_leary; LinkedIn) is an economics PhD candidate at the Cork University Business School in University College Cork, Ireland. His research interests include firm dynamics, labour, and life satisfaction.


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