The theoretical background explores different theories related to the variables of the research. The primary concepts are entrepreneurship and unemployment. There is a vast list of entrepreneurial theories, but the most famous entrepreneurship theories include uncertainty-bearing theory, economic theory, and theory of innovation. Prominent employment theories are also discussed in the following section.
Entrepreneurial Theories
Peter Drucker’s uncertainty-bearing theory argues that entrepreneurial behavior, innovations, and resources are the key factors of entrepreneurship. Entrepreneurs play a significant role in the small enterprise’s creation. Entrepreneurs make a significant contribution to the development of the country, its economic growth, and reduce unemployment.
Kirszner’s theory is also known as the economic theory of entrepreneurship. It emphasizes that entrepreneurship is about being spontaneous and alter the process of learning. The theory states that entrepreneurship is an activity of conscious knowledge gain that is motivated by the gain. The gain can be personal or financial. According to the theory, entrepreneurs are a source of profits. They seek opportunities and use them to make a profit for the organizations that lead towards the country-based developments. The theory explains that entrepreneurship improves the rate of self-employment and, thus, employment in the country. Economists and policymakers most consider this theory.
Joseph Schumpeter proposes that entrepreneurship is about innovation and creativity. The theory states that the challenges to the unemployment condition of the country are inversely related to entrepreneurship. The theory implies that entrepreneurship establishes new businesses in countries that stimulate employability through the creative utilization of resources. Further, the decline in the rate of entrepreneurship tends to increase the rate of unemployment. Thus, improvements in entrepreneurial activities lead countries towards poverty reduction, a decrease in unemployment, and fast economic development.
Unemployment Theories
The theories define three sorts of unemployment that include natural unemployment, frictional unemployment, and structural unemployment. Cyclical unemployment refers to the level of unemployment that is not because of any particular reason.
Cyclical unemployment refers to unemployment that occurs during the normal cycle of the country. For example, when countries go through a recession or any other economic downturn, it reduces the investment level and leads to business closures that decline the status of employment. Even companies, when facing an economic crisis, lay off workers, and that will cause unemployment. Such uncertainties are the core factors that lead countries to a decreased ratio of employment.
The frictional unemployment occurs due to multiple reasons, but the common one is the desire to switch the job when labor has not found another opportunity.
Structural unemployment refers to unemployment that occurs because of the mismatch between business needs and employee’s skills. This unemployment type is also based on industrial structure. For example, if a recession causes business closures, then the unemployment rate will increase.
The relationship between Entrepreneurship and Employment
Entrepreneurship has become an important concept for policymakers. This is primarily because of the contribution of entrepreneurship to economic development. An improved rate of self-employment improves the productivity and flexibility of the economic systems. Entrepreneurial activities improve the competitiveness of the country and enhance the rate of employment by creating job opportunities for youth.
Entrepreneurship plays a dual role in the economic situation of the country. Firstly, when entrepreneurs employ immigrant workers, the indigenous unemployment rate is not affected. Entrepreneurship is more valuable to the economy when entrepreneurs utilize the indigenous labor market. The strong relationship between the employment rate and entrepreneurship is well established. The increase in entrepreneurial activities reduces the rate of unemployment.
Secondly, entrepreneurs use different resources to produce products, and these resources include the utilization of the laborers. The utilization of labor is based on government policies. The leniency in labor policies can significantly improve entrepreneurship. In other words, the growth of entrepreneurial businesses demands entrepreneurs to deploy human capital in their organizations. This leads to highly paid employment opportunities, and it decreases the ratio of unemployment.
Entrepreneurship is the engine of economic growth, and it has come to be perceived as a catalytic agent for the expansion and promotion of productive activities. Entrepreneurship is rarely practiced due to an unfavorable entrepreneurial environment — for example, the enforcement of contracts and labor issues within the regulatory system in the country and the lack of entrepreneurial skills among the citizens. However, following the introduction of entrepreneurial training programs and implementing favorable policies, the image of entrepreneurship is now far more positive.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
