How Entrepreneurship Can Help Address Unemployment in Iran
Unemployment is a major concern for both labor force participants and for policymakers, especially during periods of economic downturn. Unemployment has been shown to have long-term negative effects on an individual's happiness, even after he or she finds employment. Furthermore, the resultant decrease in tax revenue from unemployment affects many aspects of an economy. Not only is infrastructure investment reduced, but social welfare payments are increased, producing strains on any government. Iran has a considerable unemployment rate (12.2% in July, 2016) and an even higher rate of youth unemployment (26.1% in July, 2016). For decades, the Iranian government has tried unsuccessfully to reverse this trend.
In a number of countries (e.g. Germany, India), self-employment is considered to be an important labor market option for the unemployed. In such countries, governments have successfully developed policies to support unemployed individuals in establishing their own businesses. In both these countries, financial subsidies are coupled with non-financial support, such as mentoring and training. In Germany, two programs (Start-up Subsidy and Bridging Allowance) have helped the unemployed to successfully reintegrate into the labor market. Participants who fulfill certain criteria enter one of these programs and are allotted a monthly salary for a specified period of time, all the while receiving mentorship and business advice. In India, several programs such as Rozgar Yojana (introduced in 2001), have incentivized candidates to start new ventures. Rozgar Yojana is exclusively designed for unemployed educated youth. Since its inception, the program has provided employment for over 3.8 million candidates.
The Iranian economy would need to achieve a sustained annual economic growth rate of 8% in order to successfully integrate all job-seekers into the labor market—a virtual impossibility even with the post-sanctions rebound. Thus, innovative solutions for unemployment, such as entrepreneurship training programs, are paramount. To date, Iranian policy-makers have neglected to explore this kind of "bottom-up" job creation, despite the fact that 16% of the labor force is already self-employed.
From a cultural standpoint, significant research suggests that Iranians hold positive attitudes toward entrepreneurship. More importantly, young Iranians have both the ambition and the confidence needed to launch new ventures. What these youth lack is strong government-supported programs and incentives for them to pursue potential self-employment.
Factors that increase the expected benefits of entrepreneurship or decrease its opportunity costs can positively influence an individuals’ tendency to become an entrepreneur. The provision of subsidies and the creation of apprenticeships for the unemployed can encourage entrepreneurship. The most significant deterrent to setting up a business is the lack of start-up capital. The government can provide subsidies to alleviate this problem, particularly as private sources for so-called venture capital remain limited.
Implementing a successful entrepreneurship program for the unemployed must include three components. Firstly, it is important to define specific eligibility criteria for potential candidates. Secondly, the performance of participants must be evaluated throughout the mentorship process. Thirdly, the government must include successful start-ups and other ventures in the design and implementation of such programs. Iran's vital business ecosystem is rife with the elements needed to greatly improve its serious unemployment problem. The government must play a more vital role in remedying the issue.
Moreover, higher levels of human capital investment have been shown to engender entrepreneurship. It is important to note that for many who have recently lost their jobs, clear access to new opportunities is important to keep confidence high. A well-designed re-integration and training program that compensates participants would allow these individuals to consider shaping their own futures through an entrepreneurial project. My research suggests that education is one of the strongest drivers of entrepreneurial performance so courses and mentorship can help unemployed persons to create successful ventures.
Even if most of these candidates eventually return to working for others, the skills and confidence they would garner would be instrumental for their future job security in a dynamic economy. As long as participants of such programs successfully re-integrate into the labor market, the entrepreneurship program will have reached its aim.
Photo Credit: Thomas Christofoletti