Venture capital lowers unemployment

A researcher from Bath University claims that readily available venture capital for start-ups lowers the unemployment rate and the share of the long-term unemployed among the total number of unemployed.

His research also found that more readily available venture capital is likely to increase the employment rate.

The study estimated that if venture-capital availability in Italy, where it was most difficult to obtain during the sample period, had matched the US, where it was in best supply, Italy’s unemployment rate might have been 1.8 percentage points lower, its long-term unemployment share 9.0 percentage points lower and its employment rate 2.7 percentage points higher.

On average over the sample period, venture-capital availability was rated 3.1 in Italy and 5.8 in the US on a scale of one to seven. The UK was rated at 5.3.

The study, by Dr Horst Feldmann from the university’s Department of Economics, used data collected through the World Economic Forum’s annual Executive Opinion Survey.

It uses data from the period 1982-03 and is the first to fully cover the most recent venture-capital boom.

‘The period since the early 1980s was characterised by rapid technological and structural change,’ said Feldmann.

‘Venture capital enabled start-ups to take advantage of these changes, creating new jobs. By stimulating innovation, venture capital is likely to improve the international competitiveness of the economy and raise the rate of long-term economic growth. It is also likely to induce higher foreign-direct-investment inflows,’ he added.