Number of Start-ups in the Craft Sector Continues to Fall

"Handwerk hat goldenen Boden" ("A trade in hand finds gold in every land"), for centuries, this saying was an accepted truism in Germany, one which promised craftsmen, and those who wished to learn such a trade, a secure future. Since the early 1990s, however, potential entrepreneurs have taken an increasingly skeptical view of a possible future in the craft sector. This is indicated by the decreasing number of start-ups being established in the sector, something which the biannual ZEW Start-up Report, published by the Centre for European Economics Research (ZEW) in Mannheim, has confirmed.

Above all, it is when potential entrepreneurs consider the economic risks of freelance work to be too great, that fewer new businesses are established. This was seemingly the case in the craft sector during the 1990s when there was a notable decrease in the number of start-ups established in the majority of industries in the craft sector. The classic craft industries such as construction and consumer services were no exception to this rule. Along with the fact that the number of new businesses in the craft sector is falling, the economic perspectives also suggest that the number of start-ups in the craft sector is considerably lower than that in other sectors, in particular in commercial branches. This is true for both businesses in the industrial sector and for service providers, regardless of the degree of technological sophistication in the given sector.

Given the issue of differentiating between primary start-ups (new businesses) and derivative start-ups (transfers), providing reliable data regarding the actual number of start-ups in the craft sector is not easy. ZEW, however, was able to calculate the rate of new establishments and index series, on the basis of the number of craft businesses from 1995 and data from the ZEW Start-up panel, which correctly reflected the number of new businesses founded in this sector between 1990 and 2001.

The census of craft businesses indicates that in 1994, the number of primary start-ups in the craft industry was 4.5 per cent, whilst the rate of new establishments for the whole economy, calculated with reference to the ZEW Start-up Panel, was 7.9 per cent. Figures collected for years up to 2001 illustrate that the considerable gap between the rate of new establishments in the craft sector and in the economy as a whole, has still not been closed. In fact, the difference between the two figures is increasing. This is the case for all of the major branches in the craft sector; from advanced and high-value technologies and construction, to providers of technological and consumer services, to knowledge-intensive industries. The rate of renewal in the craft sector in Germany is therefore significantly lower than the total number of businesses: This corresponds with the finding that the number of examinations sat to qualify as a master craftsman has almost halved within ten years, falling from almost 59,000 examinations in 1993, to around 28,000 in 2002. If this trend continues, the significance of craft industries in Germany will fall considerably in the years to come.

Contact

Jürgen Egeln, Telefon: +49(0)621/1235-176, E-Mail: egeln@zew.de