Entrepreneurship promotion gets people working in low- and middle-income countries
The challenges of youth unemployment and underemployment are concentrated in low- and middle-income countries. They're home to 87 per cent of the world's unemployed youth — 62 million young people, according to the International Labor Organization. Even among employed youth in such countries, 38 per cent earn less than the UN's poverty threshold. In these contexts, what intervention directly targets individuals and successfully gets them working?
Entrepreneurship promotion programs raised participants' rates of employment by the largest amount as compared to other types of interventions like subsidized employment or employment services in low- and middle-income countries. They also raised participants' earnings substantially.
Here, we're talking about interventions which directly target individuals, usually unemployed youth or those who are about to finish schooling. Next week, we'll be looking at a different set of evidence about a closely-related set of interventions: those which target small- and medium-sized enterprises.
This evidence comes from one of 3ie's systematic reviews which combines the results from numerous studies around the world. This approach provides stronger evidence than relying on a single case, where idiosyncratic issues can affect program outcomes. This particular 3ie review analyzed 107 youth employment interventions of various types, including 17 that promoted entrepreneurship.
The analysis of these 17 interventions provides more evidence about entrepreneurship promotion than a single study would, but it is a substantially smaller set of data than is available for the skills training programs we discussed last week. Accordingly, the results discussed here are less precise and reliable than what we wrote about in that post.
The interventions in the analysis aimed to provide entrepreneurial skills as well as access to capital, either via start-up grants or microfinance programs. They all targeted youth between 15 and 35 years old, as in last week's post.
Entrepreneurship promotion programs seem to have increased employment more than skills training programs in low- and middle-income countries, assuming that the programs recruited similar types of participants at the outset. On the other hand, if the entrepreneurship programs recruited youth who had already been trained in a skill, we can't compare across the types of interventions. These two interventions' effects on earnings appear similar. In contrast, subsidized employment programs or employment services did not measurably raise participants' income.
It's worth focusing for a moment on the precise outcomes these interventions achieve — and what they might not be achieving. The evidence shows that they raise the rates of employment and earnings for participants, full stop.
These findings do not necessarily mean, however, that those employed youths are no longer in poverty; the review here offers no evidence on that outcome. And we have limited information about the businesses these young entrepreneurs form.
Outside of this review, economists have written extensively about entrepreneurship, self-employment, and microenterprises (e.g. here, here, and here). But basic questions remain unanswered. For example, we don't know the fraction of self-employed workers in low-income countries who are self-employed by choice versus by necessity.
These caveats don't detract from the important finding we're highlighting here. If the goal is to get youth in low- and middle-income countries working, targeting them directly with entrepreneurship training seems to be the best bet.
For more information about the study's findings and methodology, the full study and a shorter summary are available here. Beyond this study, hundreds of other systematic reviews and thousands of impact evaluations are available in our evidence hub here.
This blog is part of our campaign 2020 Hindsight: What works in Development. Learn more about the campaign and read past blogs here.