'Scarred' Young Entrepreneurs: Exploring Young Adults’ Transition from Former Unemployment to Self-employment

The recent increase in youth unemployment causes serious concerns in regard to the current and future development of the European labour market. Previous studies reveal long lasting “scarring effects” of early unemployment experience on later career prospects, like a higher probability of future unemployment or social exclusion. It is often advocated that self-employment is a possible remedy for unemployment in general and youth unemployment in particular. This study aims at determining the individual and contextual factors that influence the transition from former unemployment into self-employment/entrepreneurship. We exploit a unique dataset based on a recent survey among young people (18-35 years) in eleven European countries. Focusing on those youths who have experienced long-term unemployment (more than six months), we estimate the individual likelihood of becoming self-employed. We aim at fathoming the factors that make young people with the “scar” of long-term unemployment experience inclined to engage in self-employment. The analysis shows that becoming self-employed after previous unemployment is more likely for males, individuals who are more willing to accept risks, who display lower values of trust in others, and those with a stronger intrinsic work motivation. Furthermore, in line with existing research on role modelling, our data confirms the positive effect of parental self-employment on descendants’ entrepreneurial activities. Our findings provide valuable insights for politicians and practitioners alike. Particularly, they can inform labour office workers on how to guide young adults towards self-employment.