Graduate entrepreneurship
- Summary
- Introduction
- New graduates going into self-employment
- Factors influencing graduate entrepreneurship
- Barriers to self-employment
- Some other issues emerged
- Conclusion
- Footnote
- References
Summary
Self-employment is a career route chosen by only a small minority of graduates, writes Pearl Mok from the Higher Education Careers Services Unit (HECSU). Research suggests that:
- Graduate entrepreneurs are more likely to be: male, older, from arts and humanities disciplines, and with parents who have entrepreneurial experience.
- Four years after graduation, graduate entrepreneurs reported lower income levels than other ‘employed graduates’, but higher level of satisfaction.
- There is a high exit rate amongst graduates who go into self-employment straight after graduation.
- Issues exist as to how effective graduate entrepreneurship can be to help re-address regional economic imbalances and graduate retention.
Introduction
Making the UK the best place in the world to start and grow a business is a vision of the government; tie in with this is the building of an enterprise culture and encouraging a more dynamic start-up market [1]. Analysis of self-employment rates from the Labour Force Survey shows that graduates are a key source of entrepreneurial activity in the UK, and in 2004, the National Council for Graduate Entrepreneurship (NCGE) was formed with the aim of raising the profile of entrepreneurship and the option of starting a business as a career choice amongst students and graduates [2].
New graduates going into self-employment
Table 1 shows the number of graduates from the 2005 cohort who entered self-employment six months following graduation, according to the 2004/05 Destinations of Leavers from Higher Education (DLHE) survey. Overall, 3.3% of the graduating cohort who were in employment were self-employed or working freelance at the time of the survey. The gender split was 53.9% males to 46.1% females.
Those graduating from part-time study were more likely to have reported this option than graduates from full-time courses (4.1% compared with 3.1%). From the data we obtained, however, it is not known how many from the former group were already engaged in entrepreneur activities during their study.
Table 1. Self-employment rates of the 2005 graduating cohort (see footnote)
| Level of qualification | Self-employed/Freelance | Self-employed/Freelance (as % of total employed) |
|---|---|---|
| Doctorate | 140 | 3.6% |
| Masters | 1435 | 6.2% |
| PGCE | 215 | 1.1% |
| Other postgraduate | 625 | 4.3% |
| First degree | 4655 | 3.2% |
| HND | 140 | 4.9% |
| Foundation degree | 85 | 3.4% |
| Undergraduate diploma/credit | 350 | 2.0% |
| Total | 7645 | 3.3% |
Graduates from design studies were the most likely to be self-employed, with 11.9% of these graduates working in the UK choosing to go into self-employment six months following graduation. This was followed by music (6.9%), drama (5.1%), business studies (4.7%) and fine art (4.6%) graduates.
Tying in with this are the occupations which self-employed graduates were engaged in, with the most popular being artistic and literary occupations (representing 18.2% of self-employed graduates), followed by design associate professionals (10.6%) and teaching professionals (8.8%).
Table 2 compares the age distribution of self-employed graduates with that of all employed graduates from the 2005 cohort. Two in five (41.7%) self-employed graduates were aged 30 and over, compared with just over one in four (27.3%) of the whole 2005 working graduate cohort.
| Age | Age distribution of self-employed graduates | Age distribution of all graduates who were in employment in the UK |
|---|---|---|
| 18-20 | 1.6% | 2.4% |
| 21-24 | 43.9% | 56.6% |
| 25-29 | 12.7% | 13.6% |
| 30-39 | 16.4% | 13.6% |
| 40 & over | 25.3% | 13.8% |
| Total | 100% | 100% |
Table 3 compares the regional distribution of self-employed graduates with that of the whole graduate working population from the 2005 cohort. The figures reveal that the South East, South West, Wales and in particular, London, all have disproportionally high levels of self-employed graduates when compared with the levels for all employed graduates.
| UK regions | Regional distribution of self-employed graduates | Regional distribution of graduates who were in employment in the UK |
|---|---|---|
| North East | 3.1% | 4.2% |
| North West | 8.4% | 10.8% |
| Yorkshire and the Humber | 5.9% | 7.9% |
| East Midlands | 5.1% | 6.1% |
| West Midlands | 6.2% | 7.6% |
| East | 6.7% | 6.8% |
| London | 28.0% | 19.0% |
| South East | 12.7% | 12.4% |
| South West | 9.0% | 7.4% |
| Channel Islands and Isle of Man | 0.1% | 0.2% |
| Wales | 5.1% | 4.8% |
| Scotland | 7.8% | 9.3% |
| Northern Ireland | 1.7% | 3.3% |
| Total | 100% | 100% |
Factors influencing graduate entrepreneurship
The DLHE survey data reported earlier refers to destinations approximately six months after graduation, at a time when many graduates are still considering various career options. Research by Galloway et al reported that graduate start-ups are likely to be a longer-term outcome, especially for science and engineering students [3].
Using The Class of ’99 data set, which charts the labour market outcomes of 9,236 UK graduates and diplomats from the 1999 graduating cohort, Greene and Saridakis examined graduate entrepreneurship over a four-year period between 1999 and 2003, and found that self-employment rate increased steadily as graduates built up labour market experience [4] [5]. The research compared two groups of graduates: current (2003) graduate entrepreneurs and those who were in other types of employment (‘employed graduates’), and identified various factors that influence graduate entrepreneurship.
Personal characteristics
Graduates that are older, male and have parents with prior experience of entrepreneurship are most likely to become graduate entrepreneurs. The research, however, did not find statistically significant differences between the social class background or the ethnicity of the employed and the self-employed graduates.
HE experience
Arts and humanities graduates are more likely to be self-employed, whilst science, engineering and technology (SET), business administration graduates and those with a background in education are under-represented amongst graduate entrepreneurs. Despite its vocational appeal, the Greene and Saridakis report finds no evidence that business courses are preparing graduates for entrepreneurship. Entrepreneurs are also more likely to have followed a part-time programme and less likely to have been following a sandwich course.
Skills
Comparison between graduate entrepreneurs and employed graduates in the Class of ’99 data set reveals that both groups received much the same type of skills development whilst in higher education. Furthermore, amongst the current graduate entrepreneurs, the skills they developed in higher education had made no difference to choosing self-employment. The research, however, found that entrepreneurial skills learnt during higher education do appear to have a long run impact on future entrepreneurial intentions.
Attitudes
Greene and Saridakis reported that entrepreneurs are most likely to see themselves as being extremely ambitious. When asked about their long term values, they place less emphasis on career development and friends compared to the employed, and do not seem overly concerned with financial issues despite the initial attraction of entrepreneurship being the possibility of an attractive salary. Similarly, earlier research by Rae and Woodier reported that graduates who have embarked successfully on self-employment tend to display high career commitment, intrinsic motivation and single mindedness [6].
Findings from the Greene and Saridakis report suggested that the graduate entrepreneurs in the Class of ’99 study tend to be motivated by non-financial factors. In fact, compared to the employed, four years after graduation, graduate entrepreneurs reported lower income levels but higher levels of satisfaction. Although there is a minority who have done well economically, the majority of graduate entrepreneurs are found to be relatively poor but happy.
Sources of support
Greene and Saridakis reported that the most likely sources of advice and guidance for graduate entrepreneurs are informal sources such as family, social networks and work colleagues. Compared to the graduate employees, entrepreneurs were more likely to make use of academics, but less likely to make use of their careers service whilst at university and less likely to make use of careers publications and recruitment agencies.
Barriers to self-employment
Financial uncertainty, lack of self confidence, experience and the knowledge of how to go about setting up a business all contribute to the barriers to self-employment [6]. Case studies from the Rae and Woodier research have revealed a ‘dip’ in students’ confidence level at the end of the final year and before graduation. Keeping options open and deferring decisions were also frequently cited as deterrents of setting up a business.
Research based on the GEM UK 2005 adult population survey of 32,500 adults of working age in the UK reveals that getting finance for the business is the single largest area preventing recent graduates from thinking of starting a business [7]. 40.3% of pre-2000 graduates reported that this was the case, rising to 56.3% for those who graduated after 2000. However, the research also found that those who graduated after 2000 were more likely to be thinking of starting a business, suggesting that attitudes towards entrepreneurship may be getting more positive.
Some other issues emerged
Inflows and outflows
The Class of ’99 data reveals that the self-employment rate increased steadily, from 1.4% in 1999 to nearly double in 2003, as graduates built up labour market experience. The research, however, found that, for those who were entrepreneurs initially in 1999, the exit rate was around 70% over a three-year period. Moreover, regardless of the number of labour market changes made, if graduates left their initial period of entrepreneurship, the consequence was that they eventually ended up in employment rather than in entrepreneurship. This suggests that those who left self-employment did not return to it as a career option, and did not, therefore, add to the stock of graduate entrepreneurs. Consequently, the increase in stock of graduate entrepreneurs over the four-year period was almost entirely due to inflow from the employed.
Several explanations are offered for the high exit and low return rates for initial entrepreneurs:
- Cultural, social or financial barriers faced by entrepreneurs.
- The skills and experience gained during the initial period of entrepreneurship had made graduates more attractive to employers.
- Graduates entered self-employment when they were faced with no other options.
Since those who are entrepreneurs immediately after graduation are not the same people just four years later, Greene and Saridakis suggest that this poses real policy challenges, as dedicated targeted support for those who intend to start up immediately following graduation may represent a waste of resource.
Regional issues
As the DLHE survey results in Table 3 show, self-employed graduates were more likely than the ‘average’ working graduate to be working in the South of England. This migration of the self-employed to already wealthy areas of the UK has also been reported in the Greene and Saridakis report, and this gives rise to doubts as to whether promoting graduate entrepreneurship could re-address regional economic imbalances and help with graduate retention.
Conclusion
As the Rae and Woodier research suggests, simply participating in a degree programme and being a student are not in themselves sufficient preparation for entrepreneurship for many students. Much work also needs to be done to further understand why particular groups are under-represented and how policy and educational support can best be used to promote graduate entrepreneurship [5].
Footnote
The total employed includes those who were in full-time paid work, part-time paid work, voluntary/unpaid work, and working and studying.
References
1. A Government Action Plan for Small Business, Department for Trade and Industry, Small Business Service.
2. A Government Action Plan for Small Business: Evidence base, Department for Trade and Industry, Small Business Service.
3. The Impact of Entrepreneurship Education in HE, Laura Galloway, Maggie Anderson, Wendy Brown, and Geoff Whittam.
4. The Class of ’99: A study of early labour market experiences of recent graduates, Kate Purcell, Peter Elias, Rhys Davies and Nick Wilton, October 2005.
5. Understanding the Factors Influencing Graduate Entrepreneurship, Francis J Greene and George Saridakis, National Council for Graduate Entrepreneurship (NCGE) research report 001/2007, March 2007. http://ncge.com/
6. Graduate Career Choices and Entrepreneurship, David Rae and Naomi Woodier, NCGE research report 007/2006, April 2006.
7. Graduate Entrepreneurship in the UK: Summary report from GEM UK data, Dr Rebecca Harding, NCGE research report 003/2007, March 2007.
Copyright © 2002-2012 HECSU | Content last updated: Summer 2007
