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Entrepreneurship and job creation

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In: Management and Economic Policy for Development ISBN: 978-1-63117-606-7
Editor: Grzegorz W. Kolodko © 2014 Nova Science Publishers, Inc.

Chapter 8

ENTREPRENEURSHIP AND JOB CREATION

Jerzy Cieślik
Kozminski University, Warszawa, Poland

1. INTRODUCTION
The significant share of small businesses in total employment and, in particular, in its
growth constitutes, along with their role in implementing innovation, a key argument for
rejecting the argument of the peripheral role of small and medium-sized enterprises (SMEs),
which dominated in the literature until the late 1970s. It served as a basis for the formulation
of a new paradigm of ‗entrepreneurship Renaissance’ at the turn of the twenty-first century
and the key role of entrepreneurship in the modern economy.
For obvious reasons, general interest in the question of impact on employment increases
in periods of recession and rising unemployment. A situation in which a significant part of the
reason why the working age population remains out of work has both economic (employment
for the purposes of income generation) and social dimensions. Professional activity is one of
the main factors determining the sense of prosperity and happiness, or lack thereof (Layard,
2005).
From the macroeconomic policy perspective, fighting against unemployment, requires
more accurate information on the types of companies (large or small, young or mature,
operating in modern or traditional industries etc.) where new jobs are created. Attempts to
answer these and other questions have received considerable attention of researchers for
decades, starting with the American economist D. Birch (1979) who was the precursor in this
field of study. In the early twenty-first century, research has gained a new dimension due to
the access to micro statistical data which enables the development processes of individual
enterprises to be tracked, as well as changes in basic economic parameters over longer
periods of time.
In this paper, we aim to show that the outcome of today's debate on the relationship
between entrepreneurship and employment has been adversely affected by the methodological
shortcomings of particular methods of measuring employment growth generated by the


E-mail: cieslik@kozminski.edu.pl.

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110 Jerzy Cie lik

enterprise sector. The above thesis is verified against statistical data on the Polish corporate
sector and economic activity in the period between 2004 and 2010.
The article is structured as follows: first, the evolution of views on the role of the
different categories of businesses in employment and job creation is outlined. In the second
part, the author takes a stance in relation to the crucial methodological dilemma, namely how
to treat the so-called ‗solo entrepreneurs’. Subsequently, alternative methods of measuring
employment growth, according to the size of enterprises are discussed. The fourth part
presents a detailed classification of enterprises in the micro sector, which includes transitional
forms of economic activity between employment and business activity. Key findings and
recommendations on the development of economic policy are presented in the Summary.

2. WHICH COMPANIES GENERATE NEW JOBS - MAJOR LINES

OF RESEARCH AND KEY FINDINGS

Given the limited space available, this article presents a summary overview of an ample
and rich discussion that has absorbed economists and policymakers for over 40 years. Let us
recall that until the end of the 1970s, the dominant view was the one of the key role of large
corporations and, subsequently the marginal role of small businesses in creating new jobs.
Research carried out by D. Birch challenged this paradigm. The evolution of economic
thought regarding the issue since the late 1970s until today is outlined in Figure 1.

Source: own analysis.

Figure 1. Current research trends regarding the principal characteristics of firms having significant
impact on employment generation.

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 Entrepreneurship and Job Creation 111

A. The Majority of New Jobs Are Created by Small Firms

This conclusion was formulated as early as 1979 by D. Birch (1979), who proved that in
the period between 1969 and 1976, 66% of the net employment growth in the American
economy was generated by enterprises with fewer than 20 staff, and additional 16% by the
group of companies employing 20–99 people.

B. New Jobs Are Generated by Young Firms at the Initial Stages of

Development

In this case, the line of argument is reversed. The share of small firms in employment
growth is significant because the vast majority of them are very young. Research based on the
observation of long-term trends in enterprise development (Haltiwanger et al., 2010) confirms
the dominant trend: a typical start-up company raises its employment levels in the first few
years, and later the employment levels off or declines as the company goes out of business
altogether. Consequently, it is in those early years that net employment growth is observed,
which has an impact on the entire economy.
The thesis of the leading role of young companies in generating new jobs has important
ramifications for economic policies, as it points to the need of support for the process of
setting up new businesses. Are emerging firms really critical in the generation of new jobs?
Researchers who have a sceptical attitude to this viewpoint list a number of pitfalls. First of
all, the available data and, consequently, the analyses based on them relate to firms that have
remained on the market, while those that discontinued their operations and eliminated the
previously created jobs elude the attention of researchers. Thus, if we take into account the
net effect of creating and eliminating jobs, it turns out that the contribution of start-up
companies to the growth of employment is limited, as new jobs tend to be short-lived. A
leading American researcher Scott A. Shane (2008) regards the belief in the crucial role of
small start-up firms in the process of job creation as one of the dangerous entrepreneurship
myths. On the basis of his own research and research carried out by other authors, Shane
estimated that the share of start-ups in the creation of new jobs in the U.S. economy stood at
the level of approximately 6%. The positive employment effect is only observed in the first
year of operation. In subsequent years, any additional employment growth in newly
established firms is ‗eaten up’ by the loss of jobs in other enterprises from the same age group
(Shane, 2008, p. 152–155).

C. The Majority of New Jobs Are Generated by Young Companies That

Begin Their Operation with High Staff Numbers

Uncertainty as to the contribution of start-up firms to the creation of new jobs drew the
researcher’s attention to a certain subgroup, namely entities that employ between several
dozen and hundreds of staff shortly after being established (Acs et al., 2008; Dilger, 2013).
This indicates that the business concept of such startups had been well developed and that the
young company secured access to significant resources for its development, including

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external financing. It can be assumed that the creation of the company had been preceded by a
thorough market research and its managers can boast solid business knowledge and skills.
Under these conditions, the company’s chances of success are much greater and the risk of
‗elimination’ of new jobs described above and typical of start-up companies is alleviated.

D. The So-Called Gazelles Play a Key Role in Employment Growth

Interest in the said group of companies stemmed a lively debate that took place the 1980s
and had been sparked off by David Birch's findings, as well as the critique of his analysis
methods by another researcher, B. Medoff. In 1994, D. Birch found a certain compromise
with his main opponentś they jointly introduced the concept of ‗gazelles’ or high-growth
firms to describe enterprises whose growth results are well above average (Birch and Medoff,
1994) typically over 20% annually over 3 to 4 years’ period. Not unlike other companies,
gazelles are born small, but they quickly move to the subsequent size categories; many of
them expand to become very large. The above mentioned authors departed from the
dichotomous segmentation of small and large companies to adopt a new classification,
including three categories of entities: gazelles, large corporations known as ‗elephants’ and
traditional small businesses without great growth ambitions (‗mice’)1.
At the turn of the twenty-first century, the category of high-growth firms became subject
of extensive research in many countries. After having summarized the results of 19 research
projects, Henrekson and Johansson (2010) formulated the following conclusions:

 A small group of high-growth firms generate a disproportionate number of new jobs,

 High-growth firms belong to all size categories: small, medium and large,
 High-growth firms are slightly younger than the average age in the industry, but they
are not very young. The majority of them have been operating for over a decade.
 High-growth firms operate in all sectors of the economy: both those considered as
innovative and in traditional industries.

These conclusions are of key importance for shaping entrepreneurship policies, as they
demonstrate that supporting the creation of new companies is not justified unless the latter
have considerable growth ambitions.

E. An Important Role in Employment Growth Is Played by a Subgroup of

High-Growth Firms - The So-Called High Impact Firms

High impact firms are those that combine dynamic sales growth with rising employment.
This category of companies has only recently become subject of debate among economists
(Acs et al., 2008; Tracy, 2011). This interest stemmed from the observation that many

1
Nowadays, the term “high-growth firm” is being widely used in the literature. The concept of ‗gazelle’ is currently
used in the Entrepreneurship Indicators Programme (EIP) of the OECD/ Eurostat to define a subset of high-
growth companies no older than five years.

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 Entrepreneurship and Job Creation 113

enterprises operating in modern sectors of economy manage to reach high, or even very high
turnover levels, which nevertheless does not translate into an increased number of jobs.
What types of enterprises can combine high growth rates of both sales and employment
and which conditions must be fulfilled? Several studies devoted to this subject indicate that
the industry and the specificity of products or services provided by a company are of key
importance (Chandler et al., 2009). This is the case when business success is closely linked to
the sales staff’s specialized knowledge about the company’s products, a high level of
customer service or the need to protect business secrets. This generates the need for full-time
employment and makes outsourcing of services less attractive. Companies that rapidly
increase their turnover and employment prevail in industries considered as traditional, in
particular in the service sector.
Acs et al. (2008) have attempted to isolate statistically the category of high impact firms.
The latter have been defined as a subgroup of high-growth firms2 that have reached at least
level 2 of the Employment Growth Qualifier (EGQ). This qualifier was to eliminate the
weaknesses of the two basic methods of measuring employment growth: absolute growth,
which favours large companies and relative growth favouring small and, in particular, micro
enterprises. The Employment Growth Qualifier is the product of the absolute and relative
employment growth3. Research carried out by the said authors with the use of a
comprehensive U.S. statistical database combining different sets of data for the period
between 1994 and 2008, confirmed the role of high impact firms in generating employment.
At the same time, the methodology applied by the researchers was debatable. First of all,
when it comes to the number and share of high impact firms in generating employment, no
major differences have been found as compared to the broader category of high-growth
firms4. In order to verify empirically whether and to what extent the Employment Growth
Qualifier is useful in isolating a group of dynamic companies with particularly significant
impact on employment, we used the 2011 INC 5000 Database – an annual ranking of the
fastest growing companies in the U.S. (INC. 2011).5 Among the companies that participated
in the ranking, and whose average annual sales growth in the period 2007 - 2010 stood at a
minimum of 20%, only about 5% of entities failed to meet the EGQ => 2 condition, with the
total contribution to employment growth of approximately 0.2%. This calls into question the
usefulness of the Employment Growth Qualifier as a tool for identifying high impact firms.

F. From High-Growth Firms to Phases of Accelerated Growth

The interest of researchers and policymakers in dynamic companies has stemmed from
the implicit assumption of the existence of a separate group of companies “infected” with the

2
In relation to a high-growth firm (a gazelle), Acs et al. (2008) apply the criterion of doubling the sales within four
years, which translates into an average annual growth rate of 19% and is slightly lower than the 20% threshold
provided for in the statistical data of the OECD/ Eurostat.
3
The calculation method can be explained with an example: if a company increases employment from 40 to 60 staff
(an increase of 20), the EGQ = 20 x 20/40 = 10.
4
In addition, in certain periods the results of statistical analysis indicated that the number of high impact firms was
greater than the number of gazelles, which was contrary to the definition of the two types of enterprises. The
authors themselves (Acs et al., 2008) found it to be enigmatic, but did not provide any clarification on this
result.
5
Detailed results shall be presented in a separate publication, currently in preparation.

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bacillus of accelerated growth. It would therefore be sufficient to identify these entities and
support their development in order to achieve the expected results in the area of employment,
innovation and added value.
Recent studies have cast doubt on whether such a separate category of companies can be
identified within an economy. Following their analysis of long-term trends in the
development of Swedish enterprises in 1998-2008, Dauenfeldt and Halvarsson (2012)
concluded as follows:

 accelerated growth is fragile and temporary. A phase of accelerated growth is usually

followed by a period of slowdown;
 the slowdown following a dynamic phase is particularly evident in the case of micro
enterprises. The amplitude of the downtrend is smaller in large companies;
 companies with very high growth rates are particularly likely to experience a
slowdown following the acceleration phase;
 a company that has experienced a phase of very high growth has a good chance of
avoiding future declines in absolute terms. These types of firms usually maintain
positive growth, returning after a period of acceleration to the long-term trend typical
of their industry.

Empirical studies conducted on large panels of Spanish (Ciriaci et al., 2012) and
American (Tracy, 2011) companies seem to confirm the findings of the Swedish researchers,
although it should be noted that this trend of research remains in its initial phases.
The results of several decades of intensive research on the contribution of different types
of businesses to the creation of new jobs have not provided any conclusive findings. With
regard to the historical dilemma of the types of firms (large or small) that have a bigger
impact on employment generation, there has been a consensus attributing a greater role to
small and medium businesses (Neumark et al., 2008; de Kok et al., 2011). The latest findings
on the existence of phases of accelerated growth undermine the relevance of this dichotomous
approach, as a phase of accelerated growth may also occur once the company has grown to
become large or even very large.

3. SOLO ENTREPRENEURS AND EMPLOYMENT

Solo entrepreneurs, or companies that do not hire employees, are the category of
businesses that proves most problematic when it comes to analysing impact on employment
generation. Approaches represented by researchers are extremely diverse: some claim that
this group should not be taken into account in the analysis of employment trends, while other
economists emphasize the important role of solo business in the fight against unemployment.
The first approach has its roots in the American research tradition. The main arguments
put forward by its representatives, who are of the opinion that this category of businesses
should not be included in the statistical analysis, are as follows:

 In the tradition of analyses of the impact of entrepreneurship on employment growth

in the United States, American researchers focused their attention on the creation of

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 Entrepreneurship and Job Creation 115

jobs under employment contract6. Given this approach, solo companies were not
included in the analysis.
 The economic impact of solo entrepreneurs is limited. For example, in the U.S. they
generate approximately 4% of all sale revenues in the business sector (Shane, 2012).
 Solo companies are treated as quasi-companies, as the nature of their activities
resembles employment more than conducting business activities. It is only at the
moment of hiring the first employee that the owner is confronted with the reality of
economic activity.
 Solo businesses in the majority of countries have very limited responsibilities of
statistical reporting as compared to employer firms.. Certain forms of economic
activities do not require registration at all: for example, many types of services are
provided on the basis of service contracts. This significantly reduces the traceability
of their activity.

However, a number of valid arguments can be cited to justify the inclusion in the analysis
of this specific form of entrepreneurship, that is the economic activity of solo entrepreneurs.
First, a clear upward trend has been observed in the share of solo entrepreneurs in the total
number of entrepreneurs in developed countries. For example, in the U.S. it rose from 75 % in
2000 to 79% in 2010 (Shane, 2012). Similar changes have occurred in the German economy:
from 51% in 2000 to 56% in 2009. In fact, the growth of number of businesses in Germany in
the period between 2000 and 2009 was entirely due to the creation of solo firms (Fritsch et
al., 2012).
In general, the growing share of the solo enterprises results from the development of
services and cooperative forms of business activity, in particular outsourcing. Many high-
level professionals provide services as solo entrepreneurs. Similarly, the growth of flexible
forms of employment encourages many to choose the option of self-employment, even if this
is not required by their contractors7. More and more often, those who cannot be expected to
employ additional staff (e.g. the elderly) take up entrepreneurial activities. The scale of solo
entrepreneurship is so significant that some authors regard it as equivalent to setting
ambitious innovative companies – a trend observed at the turn of the twenty-first century,
which led to the renaissance of entrepreneurial activities (Wennekers et al., 2010).
In the context of policies aimed at countering unemployment, it seems clear that the
category of solo entrepreneurs must be taken into account. Even if a business owner hires no
employees, he/she is economically active, and therefore does not take a job from anyone else
and, in a formal sense, is not unemployed8. Logical reasoning presented above is very
convincing and has served as a basis for the implementation of programs encouraging job
seekers to start their own businesses.
The scientific community has also started to embrace the idea of including solo firms in
the analyses of entrepreneurial activity. Let us quote S. A. Shane: "Patterns like these suggest

6
The concept of a ‗job’ in the classic question ‗Who creates jobs’ clearly indicates that it is the question of
employees.
7
This is the case of distance working. For practical reasons, such as the settlement of expenses incurred for the
purchase of a computer or the running costs (electricity, water, gas), registering one’s own business may prove
more effective.
8
In many countries, including Poland, those who wish to apply for the status of an unemployed must deregister the
business that they have previously run.

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that we need to understand why fewer and fewer American entrepreneurs are starting
businesses with employees. Without knowing the answer to that question, just interpreting the
data on small business will be difficult" (Shane, 2012).
However, we are still faced with terminological and methodological confusion, which
makes it difficult and often impossible to compare the results of international research on this
crucial issue. Basic differences are outlined in Table 1. In the American tradition, the scope of
the analysis is limited to the employer-firms and the employee category does not include
company owners. At the other end of the spectrum, there are structural business statistics
from the Eurostat/OECD, which take into account all economic operators and all those
involved in the activities of a company, that is, all employed persons9. Intermediate solutions
are adopted in relation to certain indicators of entrepreneurship introduced by
OECD/Eurostat. Here, the American approach prevails in relation to the measurement of the
impact of high-growth firms and gazelles, whereas in relation to the indicators of survival,
creation and destruction of employment only companies-employers are taken into account10.
However, in order to measure the results of their activity, both employees (hired staff) and
owners are considered. Unfortunately, the system of data collection in the Eurostat does not
allow for an easy separation of economic data relating to solo enterprises and to companies-
employers, which is necessary for a more in-depth analysis.

Table 1. Categories of business entities and forms of employment included in the

statistics and research on employment in the enterprise sector

Form of Categories of business establishments

employment Employer firms only Employers and solo establishments
Employees only Statistics and research carried out
in the U.S. Entrepreneurship
Indicators Programme* (EIP) –
measuring contribution of high –
growth firms and gazelles

Employees and EIP – survival rates Eurostat – Structural Business

business owners EIP – job creation and destruction Statistics (SBS)

EIP – statistics of employment by

size classes
* Entrepreneurship Indicators Programme is a joint initiative of the OECD and the Eurostat aimed at
compiling data in order to compare entrepreneurial activity on an international scale according to a
single set of indicators.
Source: own analysis.

9
The categories of an employed person and an employee used in statistics prove most problematic. In everyday
conversations, media discussions, but unfortunately also in scientific and official documents of government
agencies, the concept of an employed person and an employee are used interchangeably, even though the two
are not synonyms. The category of ‗employed persons’ includes both employees and owners, who are not
employed in their companies on the basis of an employment or service relationship. In the Polish business
sector, this difference is very significant, as in 2010 it amounted to 2.4 million people (8.9 million of persons
employed and 6.5 million of employees (CSO 2010).
10
It can be justified with the fact that the reasons for registering a business without hiring employees are varied and
do not necessarily reflect the desire to start a business, which could distort the observed trends.

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4. EMPLOYMENT GROWTH – HOW TO MEASURE THE IMPACT

OF ENTERPRISES OF DIFFERENT SIZES?

The question of the share of enterprises classified by size in job creation remains a
subject of interest to researchers of entrepreneurship and employment. In European studies,
apart from the basic distinction between large companies and those that belong to the SME
sector, micro, small and medium enterprises are also identified as separate groups. This is in
line with statistical standards adopted in the European Union, according to which a micro
enterprise is defined as an organization with up to nine employees, a small company employs
between 10 and 49 staff, a medium company has 50–249 employees and a large enterprise –
more than 249. In American research, the division between small (up to 499 employees) and
large companies (over 499 employees) still prevails; some researchers adopt a more detailed
classification: up to 19, 20–99 and 20–499 employees.
When analysing the structure of employment and its increase (decrease) according to
size, researchers had to rely on aggregated data provided by statistical offices. It was not until
the end of the last century (as a result of the computerization of the collection and processing
of statistical data) that tracking the trajectory of the development of individual companies
and, consequently, the identification of general patterns and trends was possible.
However, together with the new research possibilities, a number of methodological
uncertainties have emerged regarding, for instance, the allocation of employment growth to
subsequent size classes. A lot depends on the classification of companies ‗migrating’ from
one class to another, for instance from the group of small to medium-sized companies during
the analysed period (e.g. 3 years).
The precursor of this line of research, D. Birch was criticized using the base year method.
If a company employed 20 staff in t0 and 260 staff in t3, the growth of 240 employees was
allocated to the category of small companies. Obviously, this method clearly favours smaller
firms. On the other hand, the end year method overestimates the role of medium and large
companies, as a considerable percentage of them were created as small companies, which
subsequently changed the category as a result of accelerated growth.
In order to overcome this drawback, researchers have switched to ‗fairer’ allocation
methods. The first one consists in assigning growth in accordance with the average
employment during the analysed period. In the above example, the increase would be
assigned to the category of medium-sized companies (20 + 260/2 = 140). The most advanced
method of dynamic allocation consists in assigning the increase following the ‗migration’
from one class to another. If this method is employed, the increase amounting to 29
employees will be assigned to the category of small companies, the following 200 to the
category of medium-sized companies, and the remaining 11 to the category of large
companies.
To illustrate the effects of different methods of allocation, we used the previously quoted
set of companies participating in the 2011 INC 5000 (INC 2011) ranking. We analysed
employment growth trajectories of 2,172 companies, which created a total of 209,400 new
jobs in 2007–2010. Figure 2 depicts the uneven allocation of growth in subsequent size
categories depending on the applied method of research. Substantial differences can be
observed in the results obtained when the base and the final year methods are used. The

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application of the arithmetic mean method and the dynamic allocation method results in a
similar distribution.

160000

140000

120000 Base year

End year
100000
Average

80000 Dynamic allocation

60000

40000

20000

0
Micro Small Medium Large

Source: own analysis based on Inc. 5000 2011 List.

Figure 2. New jobs by company sizes calculated with the use of four allocation methods (2007–2010).

The increasing popularity of the dynamic allocation method in recent years is also due to
the development of an algorithm by the researchers from the Dutch EIM Institute (de Wit de
Kok, 2013), which allows the dynamic allocation method to be used while having access to
aggregated data only. This is an important advantage, since in many countries (including
Poland) economists have no access to individual statistical data for research purposes.
The dynamic allocation method has been used to assess the impact of subsequent size
categories (micro, small, medium and large companies) in Poland and to compare the data
with a similar study carried out by the Dutch researchers on behalf of the European
Commission. The results of the comparative analysis are given in Table 2.
According to the findings of de Wit and de Kok (2013) in the European Union, the
smallest (micro) companies have the greatest impact on the creation of new jobs. Poland is an
exception, as the growth rate in the group of large firms is higher not only in comparison with
micro-enterprises, but also with the entire SME sector11.
An in-depth analysis, taking into account different trends in different sectors of the
economy would be necessary to explain the reasons for the unusual structure of employment
growth in Poland. At this point, it is worth noting that, despite the significant increase in
employment in 2004–2010, the share of large enterprises in total employment remains below
the European Union average. Thus, as a result of relatively higher employment growth rate of
large firms, Poland is gradually approaching the pattern of employment distribution observed
in industrialized countries.

11
The Czech Republic is another country where similar trends have been observed, although mainly due to an
absolute decline in employment observed in the group of micro enterprises.

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Table 2. Contribution to employment growth by enterprise size category: Poland and

the EU-27 average, 2002–2010 (%)

Micro Small Medium Large Total

I. Annual average growth of the
number of persons employed
Poland (2002–2008) 1.9 3.3 3.4 3.0 2.7
EU-27 (2002–2008) 3.1 1.6 1.3 1.0 1.8
II. Contribution to the increase of the
number of persons employed
Poland (2004–2010) 17.3 26.0 25.8 30.9 100.0
EU-27 (2002–2008) 50.8 18.4 12.9 17.9 100.0
III. Share of the number of persons
employed
Poland (2010) 36.1 13.0 19.2 31.8 100.0
EU-27 (2010) 29.9 20.5 17.1 32.5 100.0
Source: de Wit, de Kok (2013) and own calculations based on CSO data.

It should be emphasized that the data presented in Table 2 was generated on the basis of
the European approach, and thus covers all enterprises (including solo entities); employment
growth is measured considering the increase in the number of both employees and company
owners. For this reason, the results are not comparable with the results of similar studies
conducted in relation to the U.S., where only companies-employers and hired employees are
taken into account.

5. INTERNAL SEGMENTATION OF MICRO SECTOR

An in-depth analysis of the internal structure of employment within the micro enterprises
segment (employing up to 9 people) is essential for two reasons. Firstly, in terms of numbers,
this group is dominant in the majority of countries, accounting for 90% of all businesses. The
average for EU countries was 92% in 2007, while in Poland it exceeded 95% (Key Figures
2011). Secondly, the micro sector is very heterogeneous, not only due to the previously
discussed distinction between employer-firms and solo businesses. As proven by the data
taken from the Labor Force Survey (LFS) conducted regularly by the Central Statistical
Office (CSO), transition from employment to conducting business activity can be gradual and
a number of intermediate forms exist (Figure 3).
First of all, we must not disregard the group of the so-called hybrid entrepreneurs who
conduct their business activity in addition to full-time employment, which remains their main
source of income. The vast majority of them are solo entrepreneurs, but approximately 6 % of
‗hybrid entrepreneurs’ hire employees. The opposite situation is also encountered (full-time
employment in addition to business activity), although on a much smaller scale.
In the light of the data presented above, it seems justified to divide the micro sector and
classify its firms into three groups: hybrid entrepreneurs, solo entrepreneurs and micro
employers. The situation of hybrid entrepreneurs is different from the situation of other solo
entrepreneurs, for whom their business activity conducted on a very small scale constitutes

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the sole source of income. The employment of staff definitely sets apart micro employers, as
it requires a much more mature organization. Taking into account the proportions set out by
the BAEL data, we have estimated the size of these subgroups within the micro sector and
their share in employment (Figure 4).

Persons employed
14 025

Supporting
Employees Selfemployed family members
12 213 1 736 76
458
31

33 2
Employers
Own account solo 622
1 114

Source: own calculations based on data from the CSO Labor Force Survey processed by the CSO for
the purposes of the research project carried out by the author.

Figure 3. Persons employed, by the primary and secondary activity, in the non-agricultural enterprise
sector in Poland in 2010.

2500

2000

1500

1000

500

0
Hybrid Solo Micro-
employers

Number of firms Business owners Employees

Source: own calculations based on CSO data, processed by the CSO for the purposes of the research
project carried by the author.

Figure 4. Segmentation of the Polish microenterprise sector in 2010 (excluding agriculture).

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 Entrepreneurship and Job Creation 121

Table 3. Micro enterprises as a percentage of the number of enterprises and the number
of persons employed (excluding agriculture)

Microenterprises Solo entrepreneurs Micro employers

total (zero class)
EU-27 (2007)
Number of firms 92.0% 51.2% 40.8%
Number of persons 29.0% 9.1% 19.9%
employed
Poland (2010)
Number of firms 95.2% 66.3% 28.9%
Number of persons 38.2% 13.3% 23.9%
employed
Source: own calculations based on Eurostat and CSO data.

Among micro companies, the most numerous group are solo entrepreneurs (main
activity). The number of hybrid entrepreneurs is also non-negligible: this group totals over
330,000. When it comes to the total share in employment, the micro employers take the lead.
Not only do they engage themselves, but they also hire employees (an average of 2.9
employee per firm).
The proposed segmentation of micro entrepreneurs enables us to carry out an in-depth
analysis of the role of this group of firms in the entire business sector. The excessively high
share of micro enterprises is often treated as a sign of weakness and a relative
underdevelopment of the structure of the business sector. In Poland, their share is much
higher than the European average, which is the result of two qualitatively different factors
(Table 3). On the one hand, Poland has a disproportionately large share of solo entrepreneurs
in the total number of enterprises and, on the other hand, considerably fewer micro
employers. In order to evaluate the macroeconomic effects of these trends, we would need to
carry out a more detailed analysis, taking into account the specific nature of each industry.
However, the segmentation of the category of solo enterprises (including hybrid
entrepreneurs) and micro entrepreneurs seems by all means necessary.

SUMMARY AND CONCLUSION FOR ECONOMIC POLICY

Thanks to the extensive research conducted over the past several decades, we now know
much more about the role of different groups of enterprises and the factors affecting the
creation of new jobs within them. This has been largely due to the improved access of
researchers to micro company data, which allowed them to track changes in employment
trends over periods of many years.
However, research progress in this area is hampered by the lack of uniform standards in
relation to basic categories, such as the concept of an entrepreneur, an enterprise and
employment. It makes the task of comparing the results of studies conducted in different
countries difficult, especially in the case of American and European research. Hence the need
to remain cautious, as the observed trends and differences between countries may be due

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more to differences in research methods than the actual economic processes. The following
issues are recurrent methodological pitfalls:

 including in research only employer-firms, or also solo enterprises,

 including in research only employees, or also the owners of enterprises,
 applying different methods of employment growth allocation according to size
classes of enterprises (the base year and the final year method, the arithmetic mean
method, the dynamic allocation method),

Research conducted thus far has allowed economists to reach beyond the traditional
division between large and small companies; it has shown the diversity of enterprises from
the point of view of their ability to create new jobs. At present, researchers dealing with
employment and entrepreneurship are facing a different challenge, namely the qualitative
changes in the labour market. Back in the 1970s and 1980s, employment was associated with
jobs and their physical dimensions (location, equipment, rights and responsibilities of
employees etc.). The division between employees and employers was also quite
straightforward. Today, the existence of flexible forms of employment and the diversification
of forms of economic activity has made the border between entrepreneurship and employment
fluid. Żor a growing number of people in the ‗intermediary’ zone, such as solo entrepreneurs,
the category of ‗economic activity’ of ‗economic involvement’ seem more relevant. The
segmentation of the microenterprise segment proposed in this article appears to be more
useful for the analysis of the processes taking place in the modern economy, including the
analysis of the relationship between the broadly understood employment and
entrepreneurship.
The experience of the past few years of global crisis has shown clearly that
unemployment remains a pressing economic and development problem; it remains unsolved
not only in the underdeveloped, but also the most developed countries. Hence the question
posed at the beginning – ‗Who creates jobs?’ – remains valid even in the context of the
implementation of effective measures to stimulate employment growth.
The general conclusion stemming from the foregoing considerations is that the key to
effective employment policies is a better identification of the internal structure of the business
sector. The traditional approach was based on the dichotomy between large and small (SMEs)
companies, or between young and mature enterprises, which seems clearly unsuitable today.
The research instruments used should be more selective and targeted at specific groups of
entrepreneurs.
Some of the observed trends should be taken into consideration already at the early stage,
while supporting candidates for entrepreneurs. If a significant number of jobs are generated
by companies that employ more people from the very beginning of their operation, state
policies should support mainly those budding entrepreneurs who have a clear development
strategy, plan to hire staff and, therefore, are likely to create new jobs.
Hybrid entrepreneurs generally remain outside the sphere of interest of decision makers
because they have a job. However, a more detailed analysis shows that many hybrid
entrepreneurs consider their full-time employment as a certain safety net until they have built
up an extensive network of clients and their young enterprise can stand on its own two feet.
Support may encourage them to resign from their job and dedicate all their time and energy to

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 Entrepreneurship and Job Creation 123

their own business activity. The posts vacated by them can be taken over by other job seekers,
while the entrepreneur’s full involvement in the development of their business may ultimately
result in hiring employees.
Solo entrepreneurs are a heterogeneous group as well. In addition to the classic sole
proprietorships, based solely on the work of the owner, many of these entities have a certain
development potential. Practice shows that hiring the first employee proves a major difficulty,
as it requires the necessary adaptation of the organization itself and knowledge of a plethora
of legal provisions; it also involves additional administrative burdens. Given the above, some
countries implement instruments to encourage the hiring of the first employee. Taking into
consideration the large and growing number of solo entrepreneurs, the effects of such policies
can be significant. In the Polish context, if such measures encouraged only 10% of over
800,000 solo entrepreneurs to hire an employee, as many as 80,000 new jobs could be
created.
The above measures would increase the number of micro-employers who, as proven by
the earlier analysis, have a significant share in the total employment growth in the company
sector, as the creation of new jobs (economic engagement) involves both employees and
owners. An increase in the average number of full-time employees per company in this
segment would affect the labour productivity, which would have positive consequences for
both the company itself and the state budget (increased tax revenue).
In the case of small, medium and large businesses, policymakers should take into
consideration the observed tendency of accelerated growth phases, regardless of the size of
enterprises or the industry in which they operate. A particular challenge lies in the
identification of the areas where a dynamic sales growth is accompanied by an increase in
employment. Here, conflicts between the policies supporting innovation in business and those
that focus on employment growth are likely to arise.

Note: The text is part of a broader study by the author entitled "Entrepreneurship and
economic development" (under preparation).

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