Social startups add more to the economy than they get credit for, study says

BRISBANE, Australia — As the world continues to deal with the medical and economic fallout of coronavirus, a study says social start-up companies have more to offer than just hope. Researchers from Queensland University of Technology say social venture startups take pressure off the economy and create more jobs than they get credit for.

A team at the school’s Australian Centre for Entrepreneurship Research tracked direct and indirect job creation effects across 67 regions in Sweden over the course of eight years. From their studies, researchers discovered job creation from startups actually outpaces larger commercial companies. The team argues start-up ventures are terribly overlooked when it comes to adding to the workforce, even though they are praised for alleviating tensions with social problems.

“It has long been acknowledged that the entry and growth of new firms contribute a large share of job creation in most countries. Social venture startups, however, are mostly celebrated for their worth in helping the disadvantaged or solving social concerns – their role in job creation has not really been considered,” says Professor Martin Obschonka in a university release.

Social startups enjoy a market without competition

Startups are a big factor in the assistance of individuals with disabilities, marginalized groups, and individuals who have been unemployed for an extended amount of time. Most individuals who choose self-employment make their way over to commercial startups, which study co-author Professor Per Davidsson says, “can mean they have no burning desire to grow and take on employees.”

“Commercial startups also often operate in crowded markets with little room for growth. So even the high growth firms among the commercial category do not raise the average to high levels; partly because they outcompete or acquire some of their peers,” Davidsson adds.

Social venture startups on the other hand address different needs such as homelessness, domestic violence, substance abuse, and animal welfare. Unlike commercial startups, which operate in crowded markets, the study finds social ventures can work without the pressure of competition.

“This creates room for growth without pushing out other social ventures. And being passionate about solving as much of ‘their’ social issue as they possibly can, social entrepreneurs are motivated to grow. They can also benefit from lower costs due to tax breaks and partial reliance on volunteers to have a growth advantage over commercial firms offering competing products or services,” Davidsson explains.

The lead author recognizes commercial firms are still larger than their social counterparts and create more work overall. Despite this, the researchers say employment in the social sector continues to grow in multiple countries around the world.

The study is published in the journal Small Business Economics.