The welfare bridge consists of arrangements to make it easier from people who depend on welfare benefits (such as unemployment benefit) to start their own business and become economically independent.
The objective of encouraging people who are economically inactive or active in the unofficial economy to take a risk as a formal entrepreneur is undermined if the welfare benefit system gives perverse incentives. This can happen if for example recipients of unemployment benefit or social security lose the right to benefit as soon as they start trading, even though they may not yet know whether their business idea is viable. A reliable welfare bridge is therefore a necessity.
Three alternatives may be considered:
- Transitional welfare benefit
In countries where the welfare benefit regime permits, a status may be conferred whereby a beginning entrepreneur continues to receive benefit while testing out his or her business idea. An example of this is Ireland’s Back to Work Enterprise Allowance.
- Capitalisation of benefit
In some countries, people wishing to go into business can receive a sum equivalent to their accumulated unemployment benefit as a lump sum to invest in the business. an example is Spain’s pago único.
- Specific legal structures
In other jurisdictions, special legal structures are used to provide entrepreneurs with financial and legal cover during the trial business period. These include associations such as the French and Belgian couveuses d’entreprises (business incubators), and co-operatives such as the French cooperatives d’activités et d’emploi (business and employment co-operatives), which have also been adopted in Belgium and Sweden. These give the beginning entrepreneur a safe legal status and an income guarantee as the business builds up, as well as peer support. They do not necessarily provide premises.