Imacs 2016 imecs 2016 Proceedings (Preliminary version) of the 4
SLOVAK BUSINESS ENVIRONMENT IN THE CONTEXT OF THE SITUATION ON THE LABOUR MARKET
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- 240.Introduction
- 241.1 Small and Medium Enterprises in Slovak Business Environment
- 242.2 Characteristics of the Slovak Labour Market
- 243.3 SMEs as an Important Employer
- 244.Conclusion
- 245.References
SLOVAK BUSINESS ENVIRONMENT IN THE CONTEXT OF THE SITUATION ON THE LABOUR MARKET239.Petra Milošovičová, Paulína StachováAbstract The importance of the entrepreneurship for modern economies has been studied widely. This paper investigates the relationship between self-employment and SMEs and unemployment rate in Slovakia. The link between the labour market and the business environment is very close one. The researches made in this field found out that high unemployment rates may lead to start-up activity of self-employed individuals (the “refugee” effect), or on the other hand, higher rates of self-employment may indicate increased entrepreneurial activity reducing unemployment in subsequent periods (the “entrepreneurial” effect) (Thurik, 2008). The situation in the Slovak republic proves that small and medium enterprises, together with the self-employed persons, plays a crucial role in the employment, with their contribution of 69,6% to the total employment. The research based on the secondary statistical data allowed us to describe the situation of SMEs, hand in hand with the situation on the labour market. This analysis was strengthened by the correlation analysis. The relation between unemployed and start-up business motivation was proved. Only the group of long-term unemployed shows very low correlation. The findings of this paper may serve as a contribution to the discussion searching for the effective solutions to improve the situation on the Slovak labour market. Key words: unemployment rate, labour market, business environment, SMEs JEL Code: E20, J20 240.IntroductionSlovakia’s start of the real economic growth, compared to its neighbors in Central Europe, during 1990s was a bit slower. With the start of the new millennium the things started to change a bit more promptly, and after entering the EU in 2004 Slovakia was on the right way to increase its economic prosperity. Before the crisis of 2008/2009 it was one of the fastest growing EU countries, and in the period after the crisis it seems to be one of those which are recovering faster than the rest. In 2015 the Slovak real GDP grew at the rate of 3,6 % (Eurostat 2015), the unemployment rate reached the post-crisis minimum of 11.5 % and many reforms took place in the Slovak economy. Changes in the business environment played important role in the whole process. Entrepreneurship is generally viewed as essential for the development of present market economies, as new firms are often source of increased productivity and innovation, leading to economic growth and growth of employment. The reality proves correct two different explanations of the relation between the unemployment rate and starting of business tendency. The so called “refugee” and “entrepreneurial” effects are at work. The new trend in present world is to focus economies towards entrepreneurial economy, based on the knowledge as the main competitive advantage. Knowledge is mainly represented by R&D, human capital and patented inventions, so it seemed that SMEs and self-employed stayed sidelined. The last decade proved those thoughts incorrect, as small and young firms have returned as the engine of economic and social development. Small firms, in general, and new ventures, in particular, are the engine, not only of employment creation, but also of productivity (Thurik, 2010). This could be the case of Slovakia on which it can build its future economic growth. Unfortunately there are persisting several serious problems in Slovak economy as e.g. long-term unemployment, unemployment of youth, availability of childcare, position and conditions for SMEs compared to multinationals. How government choose to regulate business activities also plays a fundamental role in the development, performance and growth of individual companies and entire industries. This paper is organized as follows. Firstly it explains the position of SMEs in Slovakia, then it shows the development of the unemployment rate during last decade. The last part discusses the results of the correlation analysis between number of SMEs and the unemployment rate. Conclusion offers short summary of the findings.
The number of small and medium-sized enterprises in Slovak economy is growing over time. This positive development is based on the openness of business environment for establishing the SMEs. Low entrance barriers contribute to the growth of competitiveness, innovation and quality improvement. There were also several structural changes in the recent years. The proposal of the new law for the support of small and medium enterprises should from the beginning of the year 2016 facilitate establishing and running SMEs in Slovakia (note: at the time of finishing this paper – May 2016 - the law was still not adopted). In Slovakia nearly 75 % of SMEs are actually micro enterprises with fewer than 10 employees. Their number is permanently increasing, even during the crisis period, when there was decrease in almost all other types of enterprises according to their size. See Figure 1.
Even though there is increasing tendency of the number of SMEs, in comparison to other European countries, Slovak business environment has still many weaknesses. Administrative and regulatory barriers and quite often legislative changes of different kind harm the business environment and make it less competitive externally. Despite improvements, the process of setting up and running a business in Slovakia remains relatively onerous. Administrative and regulatory barriers harm the business environment, reducing external competitiveness and domestic economic activity. The weaknesses in Slovakia’s business environment are regularly reflected in cross-country comparisons (e.g. Pilková, A. and col., 2015). 242.2 Characteristics of the Slovak Labour MarketThe labour market has witnessed a cyclical improvement. The unemployment rate fell to 11.5 % in 2015 and is expected to further decline below 10 % in 2017. However, structural unemployment hand in hand with unemployment of the young people and long-term unemployed, continues to represent a key challenge, reflecting pronounced geographical differences in labour market conditions, accompanied by low labour mobility between regions. Low educational outcomes and inequalities linked to socio-economic background represent major obstacles to the improvement of human capital with potential knock-on effects for skill levels and growth potential (European Commission, 2016). The labour market has been for a long time a big challenge within the effort to achieve an economic prosperity and growth. The situation within the labour market is not improving so smoothly together with the development of the rest of the economy. The unemployment rate in recent years was still very high (see Figure 2), and still exceeds the pre-crisis level. At the same time, the rate of employment is lower than the EU average, and the biggest problem is in the group of young people (15 – 29 years, see Figure 2). Fig. 2: Unemployment rate (in %) for the period 2004-2015 Source: Adapted according to SLOVSTAT, 2015a. Within its report OECD pointed out that the poor labour market performance of Slovak youth is primarily the result of high unemployment rates among graduates from vocational schools, who account for nearly two-thirds of all youth graduates (Ministry of Labour, 2013). High youth unemployment is partly caused by the education sector where there is a missing link to the needs of the real economy. The youth guarantee and the dual system of education are seen as a reasonably good measures to reduce young people’s unemployment (European Commission, 2014). What makes problem even more serious is the fact, that Slovakia has a persistent high long-term unemployment (see Figure 3). Between the unemployed the biggest group are those, who are unemployed more than 1 year (this is what we call economically “long-term unemployment”), and even the biggest group of unemployed consist of those, who are unemployed already more than 2 years. The long-term unemployment is one of the highest within the EU and the OECD. That means, that unemployed people, even though they may fulfil the general conditions of being easily employed, given their age and obtained education, have a real problem to find appropriate job, as they are losing their job skills, working habits and even the motivation. This makes the problem of unemployment even more serious.
The up-to-date trends of the global labour-market development give rise to a wide space for capable and qualified applicants trying to acquire various job positions (Kajanová, 2011). Such trends do not solve the serious problems of the Slovak labour market. The improving labour market has not translated into significantly lower levels of long-term unemployed. High and persistent long-term unemployment represents a policy challenge, particularly affecting the low-skilled and young, while large regional disparities persist. The education system is insufficiently geared towards increasing Slovakia's economic potential. 243.3 SMEs as an Important EmployerSome studies argue that entrepreneurial activity has a positive impact on economic growth, while others report significantly positive effects of new business formation on employment growth over time. Linking unemployment to self-employment dates at least to 1940s, when Oxenfeldt argued that individuals confronted with unemployment and low prospects for wage-employment will turn to self-employment as a viable alternative. Even earlier Knight defined that individuals decide between three states – unemployment, self-employment and employment. The prediction of a positive correlation between self-employment and unemployment has been the basis for a range of studies focusing on the decision of individuals to become self-employed, which suggest that increasing unemployment leads to increasing startup activity because the opportunity cost of starting a firm has decreased. This effect has been referred to as the unemployment push, or refugee effect. There is, however, an important counterargument to this theory. Entrepreneurial opportunities are not just the result of the push effect (the threat) of unemployment but also of the pull effect (the opportunity) produced by a thriving economy as well as by past entrepreneurial activities, the pull, or entrepreneurial effect is the motor. There is no accepted agreement if unemployment influences start-up activity, or the reverse is true, start-up firms hire employees, resulting in subsequent decreases in unemployment Another issue is that the unemployed tend to possess lower prerequisites (e.g. the human and financial capital, or entrepreneurial talent) needed to start and sustain a new firm. This, in turn, would suggest that high unemployment may be associated with a low degree of self-employment (Thurik, 2008). Small and medium-sized enterprises in the SR employed in the year 2015 approximately 41.4 % of the total number of employees (in absolute number it was 931 495 employees). The small-sized enterprises (this time counted also microenterprises) constituted 24.3 % of total employment, the medium-sized enterprises constituted 17.1 %. At the same time there is another big group of individual entrepreneurs (sole-traders), who consisted for the same period of time of 634 500 persons (traders including their employees), which is 28.2 % of the total number of employees (SLOVSTAT, 2015b). The contribution of SMEs to the employment in the previous years can be seen in Figure 4. Fig. 4: Ratio of sole traders (entrepreneurs), small, medium and large enterprises in the total employment (in %) for the period 2006-2015  Source: Adapted according to Slovak Business Agency, 2006 – 2015. This division of enterprises by the category of size with the reference to their proportion on employment copies the situation in the whole EU. It is sure, as already mentioned, that micro enterprises and individual entrepreneurs play crucial roles in overall economies. There was not a significant decrease in their ratio on total employment even during crisis. The relations between the number of self-employed people and number of employees in SMEs and the unemployment rate could be seen from the Table 1 containing Pearson correlation coefficients. Tab. 1: Pearson correlation coefficients – relation between unemployment rate and number of self-employed/SMEs
Data proves, that during the last decade, there was a negative relation between unemployment rate and self-employed persons. It is clear that self-employed persons play fundamental role in the Slovak economy. During the pre-crisis period people in all age groups were more courageous to start own business (as self-employed) once being unemployed. In the next years it started to be domain of the oldest part of the productive age population (50 – 65 years) - maybe because of missing possibilities to find employment, it is an example of the “refugee” effect, as older people in the Slovak labour market (mainly those few years before retirement age) are in a big disadvantage compared to younger people, so they are strongly pushed to solve their unpleasant situation. But still the biggest correlation is within the age group 30 – 34 (while looking at 5 years intervals of age). This could be explained as a motivation of young people to start an own business and using possibilities which are occurring more and more during recent years (e.g. donations to start-ups, the change in the focus of different study programs to the self-business orientation). This motivation could be interpreted as the “entrepreneurial” effect, young people are pulled by the opportunities. The persisting problem are long-term unemployed, for whom the possibility to become self-employed is not a solution. Those people are mostly low-qualified, with lack of needed capital and knowledge for starting own business. Very special position have also disabled people, who are mostly overlooked by authorities. According to the Eurostat, people with disabilities compose more than 16 % of the EU population in working age; problem is that employed are only 40 % of them (Treľová, 2014a). People with disabilities are particularly vulnerable group in the labour market. The inclusion of them into the workforce is a major form of the integration of these persons and also the prevention of unfavourable social situation (Treľová, 2014b). That is why government tries to focus on those groups of people within its measures to improve the situation on the labour market. 244.ConclusionThe present paper shows the important role that changes in self-employment can play in reducing unemployment. It is obvious that SMEs play a crucial role in the development of the Slovak economy, their role as main employers could not be overlooked. Thanks to their size they are more flexible to react to changes in the business, political, economic and social environment. Their business orientation is, compared to big, mostly foreign-owned companies, not so focused on just one main industry (automotive in case of Slovakia). At the same time, their position in the market is quite disadvantageous. SMEs due to their size have for example several handicaps: relatively difficult access to financing, limited resources, vulnerability to unexpected changes in the business environment. They also have difficulties in attracting qualified employees and they face difficulties when entering new markets. The Slovak business environment seems to have a lot of weaknesses, as e.g. frequent changes to legislation, the complexity of administrative procedures and burdensome requirements imposed by government regulations, but also disconnection between education system and the needs of the labour market, which results in skill mismatches on the labour market, very low investment in R&D and innovation and high energy prices. There exist deficiencies in the business environment in the area of law enforcement, lack of efficiency and transparency in the public procurement and the allocation of funds (including structural funds), corruption, clientelism and excessive bureaucracy. Due to their financial abilities and unfavorable position on the market SMEs are not able to adapt quickly to the global trend (Paškrtová, 2014). Business associations see as the main problem high taxes and social contributions. SMEs do not still have enough support from government, compared to the situation in some other EU member states (e.g. Netherlands and Sweden) (European Commission, 2014). This paper attempts to unravel complex relationships between self-employment and the role of SMEs and the unemployment rate in Slovakia. Using a rich data set for Slovakia for a recent period paper shows the relationship between unemployment and self-employment is negative. Changes in self-employment rates seem to have a clear impact on subsequent changes in the unemployment rate (especially in the age group 30 – 34, and above 50 years). The same is not true for the long-term unemployed, where the solution is not just motivation to self-employment as those people are lacking knowledge and capital to start a business. But fortunately there are positive tendencies in the development of unemployment rate. We can suppose that new policies, as e.g. the lowering of the tax wedge for the low-paid in recent years, in combination with the granting of in-work benefits for the long-term unemployed, could contribute to a reduction in long-term unemployment. Even though the role of SMEs is significant for the Slovak economy, they are very sensitive to economic changes at the same time therefore, it is inevitable to pay attention to supporting the development of SMEs while creating environment where they can broaden their activities and help the economy to recover as soon as possible. The role of Slovak government concerning the weaknesses of business environment is very important nowadays as a systematic solution is needed.
http://ec.europa.eu/slovakia/documents/report_roundtable_with_trade_unions.pdf EUROPEAN COMMISSION. (2016). Commission Staff Working Document - Country Report Slovakia 2016. Retrieved from http://ec.europa.eu/europe2020/pdf/csr2016/cr2016_slovakia_en.pdf EUROSTAT. (2015). Real GDP growth rate volume. Retrieved from http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tec00115&plugin=1 Kajanová, J. (2011). The Competitive Advantage in the Global Labour Market. Business, Management and Education, Vol. 9, No.2, 157-170. Ministry of labour, social affairs and family of the Slovak Republic. (2013). Report on the social situation of the population of the Slovak Republic for 2012. Retrieved from http://www.employment.gov.sk/files/legislativa/dokumenty-zoznamy-pod/report-on-social-situation-population-sr-2012.pdf Paškrtová, L. (2014). Pôsobenie malých a stredných podnikov na Slovensku v meniacej sa globálnej ekonomike. In: Globalizácia a jej sociálno-ekonomické dôsledky´14. (486-494) Žilinská univerzita v Žiline. Pilková, A., Holienka, M., Rehák, J. & Kovačičová, Z. (2015). Podnikateľská aktivita a prostredie na Slovensku. Bratislava: Univerzita Komenského v Bratislave Fakulta managementu. SLOVAK BUSINESS AGENCY. (2001-2014) Stav malého a stredného podnikania. Retrieved from http://www.sbagency.sk/stav-maleho-a-stredneho-podnikania SLOVSTAT, (2015a). Unemployment rate. Retrieved from http://www.statistics.sk/pls/elisw/ MetaInfo.explorer?obj=41&cmd=go&s=1002&sso=2&so=15 SLOVSTAT, (2015b). Demography of enterprises. Retrieved from http://www.statistics.sk/ pls/elisw/MetaInfo.explorer?obj=337&cmd=go&s=1001&sso=1&so=5 Thurik, A.R., M.A. Carree, A. van Stel & D.B. Audretsch. (2008). Does self-employment reduce unemployment? Journal of Business Venturing, 23(6), 673-686. Thurik, A.R. (2010) Learn from each other on the path to growth, IESE Insight, issue 6, 37-44. Treľová, S. (2014a). Nástroj na podporu uplatnenia osôb so zdravotným postihnutím na trhu práce. In: Právno-ekonomické aspekty dlhodobej nezamestnanosti 2014. (114-119) Bratislava: Univerzita Komenského v Bratislave. Treľová, S. (2014b). Integrácia občanov so zdravotným postihnutím do pracovného procesu. In: Osoby so zdravotným postihnutím v práve Slovenskej republiky a Českej republiky. (218-228) Plzeň: Vydavatelství a nakladatelství Aleš Čeněk, 2014.
Fakulta managementu Univerzita Komenského v Bratislave Odbojárov 10, 821 05 Bratislava Slovenská republika petra.milosovicova@fm.uniba.sk doc. PhDr. Paulína Stachová, PhD. Fakulta managementu Univerzita Komenského v Bratislave Odbojárov 10, 821 05 Bratislava Slovenská republika paulina.stachova@fm.uniba
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