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Sunday, 11 November 2018

The costs of entrepreneurship without a safety net

The costs of entrepreneurship without a safety net: There is a serious lack of cultural awareness of the risks associated with starting a business without having the safety net afforded by traditional employment, argues Cal Halvorsen in an op-ed in Fast Company. According to data from the US Small Business Administration (pdf), only about half of all firms survive to their fifth birthdays. Those that do stay in business, entrepreneurs often lack health insurance, according to the US Treasury Department (pdf). Only 8% of entrepreneurs contribute to a retirement plan in a single year. “Those who have higher levels of assets, spouses who have steady jobs, or families with a modicum of wealth are in a better place to start a business. If their ventures fail, they have something to fall back on,” says Halvorsen.

The risks are especially high for older entrepreneurs: The risks of a failed business is especially acute for entrepreneurs near the age of retirement. For retirees who move back into the labor force through entrepreneurship, their non-pension wealth often declines, according to a paper from the RAND Corporation (pdf). Contrary to popular belief, entrepreneurs earn less on average than those employed by someone else, according to a study published in the Journal of Political Economy. “With less time to make up for losses, the risks associated with entrepreneurship inherently increase with age.”

How does one go about setting a social safety net for entrepreneurs? On the national policy side, Halvorsen argues for widening access to universal healthcare and social insurance programs. A 2011 study found that single women with no access to health insurance coverage were 10% less likely to be self-employed, while another found that expanding food stamp eligibility in the US helped increase business ownership 16% for newly eligible households. Halvorsen also cites legislation in the US that would have created a way for entrepreneurs to collectively pay into an employment benefits fund for them. Perhaps our great grandchildren can have the same policy debate here in Egypt.

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