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Financial support during business start-up is an
effective active labor market policy tool for escaping unemployment
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.
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Expansion of microfinance to rural areas may
reduce credit constraints, helping non-farm sector growth, employment, and
development
The rural non-farm sector plays an important
role in diversifying income for rural households in developing countries and
has the potential to emerge as a major source of employment. In some cases
it has outgrown the agricultural sector, in part due to the expansion of
credit through microfinance institutions that are supported by governments,
donor agencies, and businesses. However, future expansion of the rural
non-farm sector requires increased flexibility in credit contracts, as well
as decreasing the cost of credit and the delivery of complementary inputs,
e.g. skills training.
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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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Well-designed entrepreneurship programs show
promise for improving earnings and livelihoods of poor workers
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.
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