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Graduates Mean Business

Tackey N D, Perryman S
Report 357, Institute for Employment Studies, July 1999

There is little evidence on the extent to which self-employment has become a significant career destination for new graduates. The graduate labour market is changing, and with no promises of linear corporate careers, self-employment offers wider opportunities. Success, however, requires development of entrepreneurial and specific business skills which are not part of traditional higher education courses.

Definition

The attempt to describe the extent to which graduates are entering self-employment, raises three key issues:

1. There is an issue of definition of self-employment, and whether there is a need to distinguish this from business start-up. It is relatively easy to identify what self-employment entails from the ample literature; but there is very little literature which uses the term ‘business start-up’. A useful starting point, however, is to look at what people actually do as entrepreneurs, as well as the arena in which they operate.

2. In the specific context of the graduate self-employment, another difficulty for research is to find appropriate comparators against which to measure the level of activity. An appropriate comparator could enable conclusions to be drawn about the true level of graduate self-employment.

3. The third issue concerns methodology of measurement. Self-employment is not a static condition or status. Increasingly, for some graduates, it has become part of the portfolio of career activities. In particular, there is constant entry and exit, making it difficult to measure the true level of self-employment using a particular point in time as reference.

It is possible to arrive at a working definition of what constitutes graduate self-employment and business start-up. The former refers to graduates who consider themselves to be self-employed in the sense that they have more than one customer or client. The latter refers to entrepreneurs who comply with the legal forms of a business arrangement, trading solely, or in partnership, or as a company. The definition excludes people who describe themselves as self-employed because it suits their sole employers’ tax arrangements.

Characteristics of the graduates

The graduates in our sample were divided into three distinct groups for analysis: those who had any experience of self-employment since graduating; those who had considered self-employment as a career option either on entering higher education, or at the time of graduating; and those who had no interest in self-employment.

Nearly one-third (31%) of the graduates were self-employed, or had been at some time since graduating with their first degree. Over a quarter (26%) had thought about entering self-employment, whilst over two-fifths (43%) expressed no interest in self-employment. The research findings also showed that:

• women were more likely than men to have some experience of self-employment. They were also more willing to consider such a career.

• self-employment was influenced by the degree course. The majority of those in self-employment graduated in the creative arts and design.

• there was some association, albeit slight, between degree class and self-employment. Graduates with better class degrees were more likely to have experience of self-employment.

• a family background in self-employment was a significant factor influencing a labour market status in self-employment.

Career patterns

The initial destination of the graduates, when assessed one year after graduation, showed that although the majority of graduates were in employment as employees, one out of every eight (12%) was self-employed. The highest levels of self-employment were recorded among media and film graduates, and the lowest among those graduating in the new technologies (including computer sciences). At the time of the survey for this study the oldest cohort of graduates had been in the labour market for four years and the youngest for two years. About two out of every five graduates (19%) were in some form of self-employment at this stage.

The analysis of the career patterns of the graduates showed rising levels of self-employment over time, and considerably higher in comparison with the graduate population as a whole. This suggests that self-employment was increasingly becoming an important career destination for these graduates. The decision to enter self-employment was also being made at an earlier stage in the careers of those graduates. The aspiration for self-employment and business start-up was also high, and was underlined by the fact that a high proportion of the graduates had a business idea they would have liked to pursue. That aspiration, however, did not always translate into deed, and raises an issue for policy to harness, stimulate and nurture the ideas and translate them into businesses.

Employment experiences

The study examined graduates’ experience in the labour market, in terms of their jobs and utilisation of their higher education qualifications in those jobs. Job changes were, on the whole, less frequent; and whilst the majority of graduates worked full time, the incidence was highest among graduates with no interest in self-employment. By contrast, graduates with experience of self-employment were more likely to work part time in their first job. Although utilisation of university qualification (ie graduate degrees) varied, the majority of the graduates thought a degree was helpful in getting their first job.

What emerged from the analysis of their employment experiences was that the graduates with less interest in self-employment were more likely to follow a traditional employment route, with a full-time job in a large organisation. By contrast, those with self-employment experience opted for smaller organisations.

The self-employment experience

The self-employed graduates chose self-employment principally for the independence and flexibility it offered. Financial rewards were not very high on their list of motivating factors, nor was security of employment. Extrinsic factors which influenced the choice of self-employment included family background, in particular, parental influence. Work experience in small organisations was also considered important.

The majority of these graduates were engaged in a combination of activities rather than only one type of self-employment:

• the most popular form of self-employment was providing services to customers

• very few worked within a family business

• three in five self-employed graduates worked on their own (ie with no employees)

• the graduates were significant employers, and had altogether just under 2,000 employees

• the majority worked an average of 40 hours a week, but a small proportion worked in excess of 60 hours

• earning levels were skewed: the median annual salary was £8,000, and three-quarters earned £18,000; variations in earning levels reflected the length of time in the labour market.

From their characteristics, two types of graduate self-employment emerged. One was the self-employed business which was likely to only support the owner-manager. The second was the new business start-up with employment growth potential.

Skills issues were important to the self-employed graduates. They relied extensively on their innovative and creative skills, which also they believed they had developed to a considerable extent at university. Other than this, there were significant gaps in acquiring and developing generic business skills such as accounting, book-keeping, product pricing, selling and, importantly, business planning. These skill deficiencies presented significant constraints to business start-up.

The role of careers guidance

The issue of whether self-employment should be reflected in the curriculum in higher education was one of the objectives of the study. The study identified four principal areas where higher education, through careers services, could play an important role, to:

• promote business awareness

• foster entrepreneurial attributes among graduates

• contribute towards skills training

• help in business planning.

The conclusion that emerged from the review of careers services activity was the need to develop expertise among staff to review and provide access to support that graduates contemplating self-employment would need or find useful. There are examples of good practice in this respect, although they are too few and far between. The need for good practice to be more widely disseminated is one of the principal outcomes of this study. To that extent, this research report forms one part of the study’s dissemination. Good practice materials are also being developed, drawing on the findings of this study and practice elsewhere among HEIs, and will be widely available to practitioners.

The study

This report presents the main findings of a research study carried out by the Institute for Employment Studies in partnership with Sussex University Careers Development Unit and the London Institute Careers Service. Commissioned by the Higher Education Quality and Employability Division of the Department for Education and Employment, the overall aims of the study were: to explore the extent of, and the potential for, self-employment as a significant career destination for graduates; whether there is a need for this to be reflected in higher education careers guidance; and how these activities could be supported. The study was carried out between March 1998 and January 1999.

There is also a useful report of the study containing a good practice guide for higher education careers services. You may download this free of charge here.

To read: click the link to open in Acrobat® Reader.

To download: right click the link and ‘Save Target(Link) As...’ to your local disk.

Copyright: this report is Crown © copyright, and therefore may not be republished or reproduced without prior permission.

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Graduates Mean Business, Tackey N D, Perryman S. Report 357, Institute for Employment Studies, 1999.
ISBN: 978-1-85184-286-5. PDF Download only: £10.00

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