We, as a nation, are supported by small businesses and entrepreneurs. I know it’s difficult to comprehend, but when it comes to employment and revenue generation, small businesses far outgrow medium or large enterprises.
Hi, I’m Anna, an educational freelance article writer promoting the importance of higher education, Assignment Geek, and Business education for several years now. In this article, I’m going to discuss the effects of formal and informal education on new businesses.
To understand how education affects businesses, we must first take a look at what the sectors are.
In simple terms, a formal sector consists of 10 or more hired workers, availing all the benefits the employment comes with. To run a formal sector, business owners need extensive professional skills.
An informal sector, on the other hand, either has no hired workers or has fewer than 10 people on its payroll and only needs a domain-specific skillset.
Now that you have understood the basic terms, let’s dive into how secondary and tertiary education affects the mindset of a business owner and the economy as a whole.
1. Effect of Secondary Education on Informal Sectors:
As per research, the effect of education on entrepreneurship or starting up a new business idea is adverse. When you get a formal education, you ought to think more about the negative repercussions that the idea might introduce. You logically start considering all the loopholes your idea has after the initial rush calms down by inciting the possibility of failure.
Contradictory to popular beliefs, a higher rate of education doesn’t necessarily mean an increased rate of new businesses. But, in the case of secondary education and informal sectors, the influence of knowledge is counteracted by the absence of organizational, administrative, planning, and leadership skills needed to pursue formal sectors and thus forcing entrepreneurs to seek informal sectors as the last resort.
I’m sorry. Let me clear out the confusion for you. The huge technical paragraph only tells you that if you have taken education up to secondary level, your chances of getting into informal sectors as an entrepreneur increases than your tertiary counterparts, who have taken a college education.
2. Effect of Secondary Education on Formal Sectors:
The concentration of entrepreneurs having secondary education starting a new venture in formal sectors is quite low. When you have any form of education, be it technical, formal, or business, you become aware of your cognitive and managerial skill levels. Which of course can be developed; but not without experience or education in that particular domain (read tertiary education).
Additionally, education up to the secondary level doesn’t make entrepreneurs aware of economical (fines and sanctions) and social status consequences. Which makes entrepreneurs with secondary education more prone to develop an informal sector business than a formal one.
3. Effect of Tertiary Education on Informal Sectors:
Tertiary education typically means college education. Entrepreneurs with college educations don’t jump into the opportunity of starting an informal business as easily as their counterparts with secondary education, as the study concludes.
In contrast to secondary education, tertiary education in most cases makes the student entrepreneurs aware of the social hierarchy and skill levels. They can develop even more by taking more managerial and economic educations. You, with higher education, won’t be inclined to start a business the informal way due to the lack of economic transparency, undervaluation of skills, and the weightage on social status.
Despite all that, a business requires both domain-specific and managerial skills. It’s not guaranteed that every entrepreneur with a tertiary education will possess the same skills to develop a successful business. In that case, many ‘samples’ from the study were inclined to informal sectors, as they were well aware of their skill levels.
3. Effect of Tertiary Education on Formal Sectors:
Nope, I won’t talk about the same social status, economical challenges, and skills that an entrepreneur will develop with a college education, which in turn will make them lean towards the formal sector. Education is not the only factor determining the choices of young entrepreneurs with higher education. The factor of knowing often overshadows their skill level and confidence to get into formal sectors.
Instead, let me shed some light on how informal education affects businesses.
4. Technical Education and Business:
With the rise of the internet and mobile devices, businesses have changed rapidly. In this era of digital operations, having digital and technical skills is almost mandatory for every young employee and entrepreneur like you. While carefully designed work-based learnings have decreased the gap between technical and non-technical employees, the scope of a new business growing without the means of digitization has decreased significantly.
5. Vocational Training and Business:
The distinction between formal and informal sectors is quite apparent in labour-intensive businesses. As a whole, the formal sector generates more value out of its labours than informal sectors, thanks to the in-house vocational training and inclination to hire more educated employees for the betterment of the business.
With a much more practical approach, vocational training also encourages young entrepreneurs with secondary education to approach formal sectors confidently with their newly found practical and semi-professional skills.
6. Business Education:
Typically occurring in secondary and tertiary educational levels, business education often consists of finance, marketing, accountancy, management, and economic skill developments. With a business degree, entrepreneurs increase their chances of success in the formal sector manifolds.
If you are planning to spearhead the formal sector, having a business degree would help you in the long term with management, human resource, and economical aspects.
You shouldn’t confuse business education with higher education. It’s not true at all. There are several secondary business education programs that do a better job than post-graduate counterparts in the expression of preparing a young mind.
The Bottom Line:
You need to understand the importance of education in determining your career choices. As an entrepreneur, you are well aware of your qualifications and skills to acknowledge the type of business you want to invest your skills in.
This article is based on studies that are only concluded by researching the actions of individuals and is not intended to discourage you to pursue your choice of business.