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How does unemployment duration affect necessity entrepreneurs?

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Argyro (Iro) Nikiforou
Assistant Professor
DTU Entrepreneurship
+45 45 25 60 70

Recently Argyro (Iro) Nikiforou, Assistant Professor at DTU Entrepreneurship was interviewed by Tobias Pret and Aviel Cogan about her paper "Necessity entrepreneurship and industry choice in new firm creation". The interview was published at the Academy of Management Entrepreneurship Division's newsletter in May 2020 and is quoted below.

 For many people around the world, self-employment is the only option they have for work. Indeed, more than 50% of entrepreneurs in developing countries engage in necessity entrepreneurship. As such, this phenomenon has primarily been studied within these contexts. However, around 20% of entrepreneurs in developed countries have also been found to start their businesses out of necessity, with their numbers having increased significantly during the financial crisis. Despite being an important phenomenon, our theoretical understanding of firm creation in such settings is sorely limited. In particular, most research does not differentiate between the levels of need experienced by those who are unemployed for different lengths of time. Accordingly, Argyro (Iro) Nikiforou, John Dencker, and Marc Gruber set out to investigate the duration of an individual’s spell of unemployment and its effect on new firm creation in their recent study, entitled “Necessity entrepreneurship and industry choice in new firm creation” and published in the Strategic Management Journal.

Nikiforou explains why the author team decided to focus on temporal aspects: “We thought it would be important to bring the duration of unemployment to the forefront, because … we know from employment research that the long-term unemployed tend to think, feel and act in completely different ways than the short-term unemployed. And indeed, we cannot really expect a person that has been unemployed for three years to think and act in the same way as a person who has been unemployed for a few months, because they [the former] have experienced this emotional pain, financial difficulties, and sometimes they are even considered ‘losers’ in their home industry by industry stakeholders.” Their findings validate this assumption, as Nikiforou noted, “Our key findings are that the long-term unemployed … are less likely than the short-term unemployed to stay in their home industry. They’re also more susceptible to the sunk cost fallacy.” However, she shared that length of unemployment is not the only part of the story: “when the long-term unemployed have high levels of industry-specific experience, they are more likely to stay in their home industry” even to the extent that “they're not attracted by more … fertile industries vis-a-vis their home industry. So, they are more inward looking and they do not seem to be as tempted by an attractive opportunity landscape.”

"This study has several implications for policy makers: what we found out about the long-term unemployed means that more tailored programs should target the long-term unemployed because, again, they tend to think, feel and act in different ways when it comes to strategic decision-making."
Iro Nikiforou comments on writing this paper

Concerning the development of their paper, Nikiforou described that “it was actually Marc's idea. He asked me whether I wanted to study necessity entrepreneurship in Greece. It was at the peak of the Greek crisis; the general unemployment rate was pretty high and the youth unemployment rate even higher … I thought that it was an interesting issue with a lot of implications for the society and for policy making, so I thought it would be a good idea to go for it.” She also shared her emotional connection to the topic: “I had a personal interest because when I took the job at EPFL … that was a great job opportunity for me, but I had this strange feeling … that I was leaving my country at this difficult time … so I think this was a very good opportunity for me to somehow contribute. We worked with the employment agency and we provided them a report of the findings and suggestions on how to improve their necessity entrepreneurship programs.”

As the authors iteratively analyzed their data, they evolved the focus of their paper. “The paper was quite different in the beginning,” Nikiforou explained, “it was this sample, but it was an entrepreneurial process paper … [However], we could not sell our story to the reviewers, so … we reflected on what our strength was and decided to focus more on necessity entrepreneurship.” Consequently, the publishing process was time-consuming. According to Nikiforou, “the most difficult part of it in the end was the introduction … we contribute on several fronts and it was difficult for us to find the right hook. We were writing and re-writing the introduction … to find out what worked best and, I guess, finally got it right.” However, she also acknowledged that “I think it was better that it took some time, because I learned from this experience and I think I have developed stronger skills and I know better how to cope with this submission/resubmission process.” She also made sure to note that, though the paper changed over time, impact was always at its core: “Since the beginning of the project, we also had impact in our minds … This study has several implications for policy makers: what we found out about the long-term unemployed means that more tailored programs should target the long-term unemployed because, again, they tend to think, feel and act in different ways when it comes to strategic decision-making.”

The above article is a quote from Academy of Management Entrepreneurship Division's newsletter in May 2020.

Read the paper in full here

 

https://www.entrepreneurship.dtu.dk/news-and-events/news/Nyhed?id=%7B8424C5DB-EBFB-4786-AA10-B5384F040A31%7D
29 OCTOBER 2020