Can entrepreneurship programs be successful labor market policies for the poor? A large share of workers in developing countries are self-employed in low-paying work or engage in low-return entrepreneurial activities that keep these workers in poverty. Entrepreneurship programs provide business training and access to finance, advisory, and networking services with the aim of boosting workers’ earnings and reducing poverty. Programs vary in design, which can affect their impact on outcomes. Recent studies have identified some promising approaches that are yielding positive results, such as combining training and financial support.
Micro-credits and start-up subsidies
Turning unemployment into self-employment is a suitable alternative to traditional active labor market policies in many developed countries. Start-up subsidies can assist unemployed workers in setting up their own business. This option can be especially interesting for people whose work is undervalued in paid employment or in situations where job offers are limited because of group-specific labor market constraints or structural changes. Furthermore, start-up subsidies are potentially associated with a “double dividend” if the subsidized businesses prosper, strengthen the economy, and create additional jobs in the future.
by Ramana Nanda
Entrepreneurship is essential to job creation and to productivity growth and therefore is an important matter for government policy. However, policymakers face a difficult challenge because successful growth for a few firms—which cannot easily be identified in advance—is accompanied by widespread failure for most other new firms. Predicting which firms will fail and which will succeed is nearly impossible. Instead of futilely trying to pick winners, governments can play a useful role in facilitating the growth of the most promising firms by setting the conditions for efficient trial-and-error experimentation across firms.