Funding young founders creates employers rather than more job applicants

The argument

A second argument for access to capital shifts the object of the policy from the individual to the labour market. Proponents observe that training, matching and connectivity all work on the supply side: they make young people more employable, more findable or more reachable, but they take the number of employers as given. Advocates argue that where youth unemployment is high the number of employers is precisely what is inadequate, and that a remedy which only improves candidates is competing for a stock of jobs it does not increase. Supporters hold that capital is the one proposed solution that acts on the other side of the market. A funded venture is a new employer, and advocates argue that the effect is not confined to the founder: ventures started by young people are said to recruit disproportionately from among their own contemporaries, because that is who the founders know and whose capability they can judge without a formal record. On this account each funded founder is a small matching and training operation as well as a new firm. Proponents also argue that the policy works with the grain of where new employment generally comes from. New and small firms, rather than long established ones, are held to account for most additions to employment, and the constraint on forming them is almost always finance. Supporters conclude that access to capital is the solution because it addresses the shortage of employers rather than the abundance of applicants, which is the side of the imbalance the other remedies leave untouched.

Premises

Counter-arguments

Critics argue that most funded ventures remain very small or close, so the employment they create is thin and short-lived relative to the capital deployed. They also note that new firms often displace existing ones rather than adding net employment, in which case the policy reshuffles jobs between employers. A further reply is that if finance were the only constraint on forming firms, the remedy would be a general credit policy rather than one aimed at the young, whose inexperience is a separate and real obstacle.

Rejecting the premises

[Rejecting P1] Improving candidates can itself call forth employers, since firms form and expand where capable workers are available. [Rejecting P2] In many settings vacancies go unfilled while young people are unemployed, which points to the candidate side rather than to a shortage of employers. [Rejecting P3] Most funded ventures employ nobody beyond the founder, and recruiting among contemporaries narrows rather than widens opportunity. [Rejecting C] Acting on the employer side only helps if the new employers survive, and the failure rate among inexperienced founders is high.