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The right policies can help the self-employed to boost
their earnings above the poverty level and earn more for the work they do
A key way for the world’s poor to escape poverty is to earn
more for their labor. Most of the world’s poor people are self-employed, but because
there are few opportunities in most developing countries for them to earn enough to
escape poverty, they are working hard but working poor. Two key policy planks in the
fight against poverty should be: raising the returns to self-employment and creating
more opportunities to move from self-employment into higher paying wage employment.
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In transition economies, better property rights
protection and rule of law enforcement can boost job creation and growth
In the transition from central planning to a
market economy in the 1990s, governments focused on privatizing or closing
state enterprises, reforming labor markets, compensating laid-off workers,
and fostering job creation through new private firms. After privatization,
the focus shifted to creating a level playing field in the product market by
protecting property rights, enforcing the rule of law, and implementing
transparent start-up regulations. A fair, competitive environment with
transparent rules supports long-term economic growth and employment creation
through the reallocation of jobs in favor of new private firms.
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Moonlighting responds to economic needs, but can generate new skills and careers
Multiple job-holding, or “moonlighting”, is an important form of atypical employment in most economies. New forms of work, driven by digitalization, may enable its future growth. However, many misconceptions exist, including the belief that multiple job-holders are only low-skilled individuals who moonlight primarily for financial reasons, or that the practice increases during economic downturns. Recent literature highlights the significant links between moonlighting and job mobility. Multiple job-holding allows for the development of workers’ skills and spurs entrepreneurship.
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Effective measurement can help policymakers
harness a wide variety of gains from entrepreneurship
Policymakers rely on entrepreneurs to create
jobs, provide incomes, innovate, pay taxes to support public revenues,
create competition in industries, and much more. Due to its highly
heterogeneous nature, the choice of entrepreneurship measures is critically
important, impacting the diagnosis, analysis, projection, and understanding
of potential and existing policy. Some key aspects to measure include the
how (self-employment, new firm formation),
why (necessity, opportunity), and what (growth). As such, gaining better insight into
the challenges of measuring entrepreneurship is a necessary and productive
investment for policymakers.
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Some entrepreneurs and would-be entrepreneurs face financial and bureaucratic barriers to starting a business
Because entrepreneurial activity can stimulate job creation and long-term economic growth, promoting entrepreneurship is an important goal. However, many financial, bureaucratic, and social barriers can short-circuit the process of actually starting a business, especially in transition economies that lack established institutional systems and markets. The main obstacles are underdeveloped financial markets, perceptions of administrative complexity, political and economic instability, and lack of trust in institutions. Gender disparities in the labor market are also reflected in less entrepreneurial activity among women than men.
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In the future, jobs will be created by those
bold enough to transform new ideas and knowledge into innovations
Globalization brings both good and bad job news.
The bad news is that jobs will be outsourced from high-cost developed
countries into lower-cost locations as soon as the associated economic
activity becomes mechanized and predictable. The good news is that
globalization creates opportunities that can be realized by people bold
enough to transform new ideas and knowledge into innovations. In that way,
entrepreneurs will play a vital role in creating the jobs of the future by
transforming ideas and knowledge into new products and services, which will
be the competitive advantage of the advanced economies.
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Business ownership is higher among immigrants,
but promoting self-employment is unlikely to improve outcomes for the less
skilled
Immigrants are widely perceived to be highly
entrepreneurial, contributing to economic growth and innovation, and
self-employment is often viewed as a means of enhancing labor market
integration and success among immigrants. Accordingly, many countries have
established special visas and entry requirements to attract immigrant
entrepreneurs. Research supports some of these stances, but expectations may
be too high. There is no strong evidence that self-employment is an
effective tool of upward economic mobility among low-skilled immigrants.
More broadly prioritizing high-skilled immigrants may prove to be more
successful than focusing on entrepreneurship.
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Digital payments can effectively connect
entrepreneurs with banks, employees, suppliers, and new markets
Digital payment systems can conveniently and
affordably connect entrepreneurs with banks, employees, suppliers, and new
markets for their goods and services. These systems can accelerate business
registration and payments for business licenses and permits by reducing
travel time and expenses. Digital financial services can also improve access
to savings accounts and loans. Electronic wage payments to workers can
increase security and reduce the time and cost of paying employees. Yet,
there are challenges as many entrepreneurs and employees lack bank accounts,
digital devices, and reliable technology infrastructure.
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New businesses are essential to keep
unemployment low, but start-ups need loans in order to create jobs
Entrepreneurship is essential for a healthy
labor market. Recent evidence shows that young businesses (at most ten years
old) have, on average, accounted for all of US employment growth over the
past few decades. New businesses are especially important for youth
employment. However, these businesses tend to borrow a lot, and the credit
constraints they face limit their ability to create jobs. Historically, much
of the discussion regarding the economic importance of entrepreneurship has
focused on small businesses. Empirical evidence increasingly suggests that,
among small businesses, those that are young create the most jobs.
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Government should create an enabling
environment—for entrepreneurs and investors—rather than try to pick
“winners”
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.
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