Aiding the Poor with Self-Employment and Small-Business Ownership

By Leith, Lawrence H. | Monthly Labor Review, July 2018 | Go to article overview

Aiding the Poor with Self-Employment and Small-Business Ownership


Leith, Lawrence H., Monthly Labor Review


Strategies for achieving income generation among poor people in developing nations is one of the principal areas of interest to development economists. One common strategy is to implement programs that promote small-business ownership and other forms of self-employment. The introduction of such programs in various countries around the world has prompted a number of academic studies aimed at assessing how well the programs work. Several studies have shown that positive effects such as higher earnings and lower unemployment remained several years after the programs were implemented. In most cases, however, these studies focus on low-income countries where most of the self-employment opportunities exist in agriculture. This raises the question of how well these programs work in somewhat more developed countries, where labor markets are more complex and diverse. In a recent article titled "The effects of micro-entrepreneurship programs on labor market performance: experimental evidence from Chile" (American Economic Journal: Applied Economics, April 2018), authors Claudia Martinez A., Esteban Puentes, and Jaime Ruiz-Tagle evaluate one such program and find that it is working relatively well, with similar results to those in the lower income countries.

The authors evaluate the "Micro-entrepreneurship Support Program" (MESP), which is administered by the Chilean government in the Santiago area and involves 1,950 participants, most of them women. The program provides in-kind transfers of start-up capital worth about $600 (roughly equal to half a year's salary for the participants), as well as 60 hours of training on sound and effective business practices. Participants receive their start-up capital in the form of materials and other inputs needed for the particular business they are opening, as part of the plan they developed during their training. Martinez A. and her coauthors select a random sample and divide it into three different groups: a control group that receives no assets or training, a second group that receives the standard benefits of the program, and a third group that receives the standard benefits plus an extra $240 worth of in-kind asset transfers. …

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