Ageing and Entrepreneurship

Gabriele Ruiu, University of Sassari
Marco Breschi, University of Sassari

The populations of economically developed countries are rapidly ageing. This represents a sign of demographic success but at the same time it poses several problems for these societies, among which would be an eventual loss of entrepreneurial spirit. Concomitant with the latter idea, the body of empirical literature has shown that the probability of starting a business seems to increase with age up to a threshold point (between 35 and 44 years of age) and to decrease thereafter. However, this does not automatically imply that the innovative attitude of those who opt for an entrepreneurial career in an older population is lower than that characterising a younger population. One may, indeed, surmise that more efforts will be exerted to introduce innovations as a strategy to compensate the negative effects produced by the shrinking in labour force size and in human capital productivity. Establishing whether population ageing has an impact on the innovation attitude of entrepreneurs is crucial to offering a better understanding of the channel(s) through which ageing my affect economic growth.

In the present paper, we implement a cross-country analysis aimed at answering the following research questions: are older individuals characterized by a lower probability of becoming entrepreneurs? If this turns out to be true, then are the entrepreneurs operating in older societies less or more prone to innovate?


As Schumpeter described over acentury ago, the entrepreneur is a subject that is able to translate inventionsinto innovations, in other words, able to give a practical application to newknowledge, but this does not necessarily emanate from the very same subject whoproduced that new knowledge, i.e. the inventor. The focus of Schumpeter’s analysiswas, therefore, on the process of exploitation of new opportunities,independently from the provenance of opportunities, and the ability asentrepreneur can be defined in this ambit as the ability to exploit newopportunities.

The body of literature on entrepreneurshiphas shown that entrepreneurial ability depends on a variety of innate andacquired traits, such as IQ, creativity, formal education, on-the-jobexperience, risk attitude, etc.

Among the demographic traits, it has beenrecently shown that the age distribution of a population is related toentrepreneurial activity. More specifically, a high share of young people in acountry positively influences nascent entrepreneurship, whereas a high share ofolder people has a negative influence.

This casts severe challenges onto advancedeconomies whose populations are rapidly ageing. On the one hand, there is nodoubt that ageing represents a sign of demographic success; on the other hand,it poses several challenges for older societies, such as the sustainability ofthe health and the pension system, the decreasing size of the labour force and,as noted more than sixty years ago by the demographer Sauvy, an eventual lossof entrepreneurial spirit: “In countries suffering from ageing,the spirit of enterprise, and hence the willingness to accept risks withoutwhich capitalism cannot function, gradually atrophies and is replaced by a newfeeling: the desire for security”(1948, p.118). According to this view, entrepreneurship seems to bea young man’s game, but this does not automatically imply that theinnovative attitude of those who opt for an entrepreneurial career in an olderpopulation is lower than that characterising a younger population. One maysurmise that more efforts will be exerted to introduce innovations as astrategy to compensate the negative effects produced by the shrinkage in labourforce size and in human capital productivity, or also that new markets and thusbusiness opportunities (e.g. new technology for improving the quality of lifeof the elderly) are emerging. Establishing whether population ageing has animpact on the attitude to innovate is crucial to offering a betterunderstanding of the channel through which ageing my affect economic growth.Research efforts have been mainly devoted to studying the direct effect of the size of the older population on economic growth, withoutconsidering that a significant part of the effects that ageing may produce oneconomic output should pass through the effect produced on entrepreneurship.In Figure 1, we plot the GEM total early-stage entrepreneurial activity drivenby opportunity (hereinafter, TEAopp) index calculated in 2013 for 69 countriesagainst the percentage of over 65 among total population. The acronym GEM stands for Global EntrepreneurshipMonitor, and it consists in international surveys realized on representativesample of adult populations by the GEM consortium, with the aim of investigatingentrepreneurship across a wide set of countries. The TEAopp indexis calculated as percentages of nascent (those who declared being involved instarting a business) or young entrepreneurs (those that own and manage a firmwith less than 3.5 years of existence) on total interviewed subjects. GEMallows distinguishing two types of entrepreneur, based on their declaredmotivations for starting a business, necessity-driven entrepreneurship andopportunity-driven entrepreneurship. Necessity-driven entrepreneurship includesthose who have declared being involved in a business start-up because they hadno other options for work. Opportunity driven entrepreneurs are, instead, thosewho have declared having been driven by a business opportunity that they haveseen, as opposed to finding no other option for work. We will consider thelatter class of entrepreneurs as high-quality entrepreneurs, i.e. those thatare more likely to introduce innovations into the economy. Figure 1 highlightsa clear negative relation between opportunity driven entrepreneurship and thepercentage of over 65 among total population. Obviously, this is only acorrelation, which may be driven by the stage of economic development. Developingcountries are generally characterized by higher entrepreneurship rate (mainlyconcentrated in the production of low value-added goods) than developedcountries. At the same time, these countries are also characterized by a veryyoung population and this may be the reason behind the observed correlation. Adeeper investigation is thus needed to confirm this relation.

Figure 1. TEA Opportunity Index VS% of population over 65, 2013.

In our paper we aim atanswering at the following questions: are older individualscharacterized by a lower probability of becoming entrepreneurs? Are the entrepreneurs operating in older societies less or moreprone to innovate?

 

Presented in Session 1149: Economics, Human Capital, and Labour Markets