How do we help Europe’s young entrepreneurs?

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.com PLC.

Europe's entrepreneurs need a helping hand. [Shutterstock]

Overly flexible labour markets and poor quality jobs are harming the European economy, not making it more competitive. Restoring the social safety net for entrepreneurs would benefit us all, writes Agnes Jongerius.

Agnes Jongerius is a Dutch Labour Party MEP in the S&D group.

Europe has always prided itself on its highly skilled and productive labour force. We owe the men and women who built our nations and expanded our welfare. Those who constructed and bought houses, schooled their children and invested, together with their employers, in themselves, creating the massive human capital on which today’s wealth is based. This investment happened, largely, because many Europeans had stable jobs to provide them with steady income and insurance against illness, disability and unemployment. They could count on support from their employers and felt secure enough to plan ahead and to invest in the future.

By contrast, the working lives of many across Europe today, and particularly young people, are characterised by insecurity. Welfare cuts and short-term or zero hours contracts are making life more precarious for many, not less.  Job security and stability are crucial to economic success, yet in many places this has vanished.  As well as blighting the lives of workers, this also has a heavy impact on levels of entrepreneurship and new business creation, because those without the means of supporting themselves cannot or will not take on the risk of starting up in business. This is not just a loss for budding entrepreneurs with a bright idea, but for the workers that might end up in new startups that never become a reality, and for European economies as well.

The European Parliament has just adopted a report addressing the over-flexibilisation of European labour markets. An important report that calls for new legislation on decent working conditions for all and which stresses the importance of protecting the increasing number of atypical workers from the risks of precarious work via European social insurance systems.

The question of how to help Europe’s young entrepreneurs was debated at an event last week in Amsterdam, organised by Tata and UK youth entrepreneurship organisation, NACUE. More attention is being paid in member states to the question of whether people who start businesses should get access to social security or maternity payments, entitlements that are often not available unless a person is in open ended employment. If we want to encourage more people to take the plunge and try to build businesses of their own, then this could help substantially by reducing the financial pressures that deter many. Presently entrepreneurs and those on short-term or zero hours contracts must pay over the odds for health insurance and other premiums in many member states – levelling the playing field would make finances much easier for entrepreneurs, as well as for flexible labour.

True entrepreneurship is hindered, not helped, by the rise of zero hour contracts, bogus self-employment and flexible labour, which are on the rise almost everywhere in the EU. In my own country, the Netherlands, once famed for its ‘poldermodel’ (stable industrial relations), more than 800.000 workers are now self-employed – a 142% increase since the mid-1990s. In other nations, due to pressure from the recent economic crisis as well as changing ideology, flexible contracts and fake self-employment are also on the rise, especially among the young. Young people with contracts of limited duration rose from over a quarter to nearly half in Italy over the last decade. In Ireland, the number more than doubled.

This is not a development I welcome. Fake unemployment does not help real entrepreneurs. Flexible labour markets do not necessarily lead to lower unemployment. Many studies show that, quite to the contrary, overly flexible labour markets lead to a fall in demand and declining productivity due to increased insecurity.  To boost entrepreneurship we will, conversely, need to bolster job security for ordinary workers.

What can the European Union do to remedy this? Firstly, European institutions should promote open-ended contracts as the norm. In last year’s Country Specific Recommendation the Netherlands received a warning; even according to the European Commission our labour market was becoming too flexible.

Secondly, the European Commission should alter its competition policy. The definition used by the European Court of Justice based on TFUE for fake self-employment is overly narrow, making it impossible for self-employed workers in many sectors, creative, but also construction and transport, to collectively negotiate minimum rates. The Commission should take a page out of the Irish playbook – the country recently ruled that actors and musicians are not self-employed and therefore should have access to collective bargaining.

Finally, European countries should limit the extent of risk to which flexible workers and the self-employed are subjected and encourage each other to do the same. The difference between the risk a salaried worker and a self-employed worker is exposed to is enormous. Salaried workers are automatically protected against unemployment and disability and they save a substantial amount for retirement. In many member states, the self-employed can only buy expensive, private insurance policies and workers on flexible and/or zero hour contracts build almost no long-term benefits or rights.

We should strive to make enrolment in social security and pension schemes obligatory for all European workers. The payment of this insurance should be factored into the rates paid by contractors and employers and these should thus be set at a certain minimum. Achieving this will have positive benefits for levels of entrepreneurship, too.

To maintain our highly productive and skilled labour market and boost entrepreneurship we must protect our people against unnecessary insecurity and future-proof our welfare state. This means pushing back against the current direction of labour market policy in member states. Flexibility is not without danger. Zero-hour contracts should be banned, social security should be made accessible to all workers and minimum rates for the self-employed are not a distortion of competition. Let us use the report on a European Pillar of Social Rights as a clear political signal and a first step towards to fairer and more productive European labour market.