Business

Generating Employment In Poor And Fragile States

Generating Employment In Poor And Fragile States: Evidence From Labor Market And Entrepreneurship Programs by SSRN

Christopher Blattman

Columbia University – School of International & Public Affairs (SIPA); Columbia University – Department of Political Science; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Bureau for Research and Economic Analysis of Development (BREAD); Center for Global Development; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) – Abdul Latif Jameel Poverty Action Lab (J-PAL)

Laura Ralston

World Bank

June 25, 2015

Abstract:

The world’s poor – and programs to raise their incomes – are increasingly concentrated in fragile states. We review the evidence on what interventions work, and whether stimulating employment promotes social stability. Skills training and microfinance have shown little impact on poverty or stability, especially relative to program cost. In contrast, injections of capital – cash, capital goods, or livestock – seem to stimulate self-employment and raise long term earning potential, often when partnered with low-cost complementary interventions. Such capital-centric programs, alongside cash-for-work, may be the most effective tools for putting people to work and boosting incomes in poor and fragile states. We argue that policymakers should shift the balance of programs in this direction. If targeted to the highest risk men, we should expect such programs to reduce crime and other materially-motivated violence modestly. Policymakers, however, should not expect dramatic effects of employment on crime and violence, in part because some forms of violence do not respond to incomes or employment. Finally, this review finds that more investigation is needed in several areas. First, are skills training and other interventions cost-effective complements to capital injections? Second, what non-employment strategies reduce crime and violence among the highest risk men, and are they complementary to employment programs? Third, policymakers can reduce the high failure rate of employment programs by using small-scale pilots before launching large programs; investing in labor market panel data; and investing in multi-country studies to test and fine tune the most promising interventions.

Generating Employment In Poor And Fragile States – Executive summary

Chances are, if you ask a President or a Prime Minister to name priorities, “employment” will come up in the top five. Employment is a path to higher and stabler incomes, and possibly some measure of fulfillment and esteem. Employment might also be a means to social and political stability. Poor and unemployed young men, it is often said, are more likely to fight, riot, steal, rebel, or join extremist groups.

The links from employment to stability are important, if only because a growing portion of the poor live in unstable places. Currently, about two billion people live in countries that are “fragile” or have high homicides rates. By 2030, the remaining low-income countries in the world are expected to be the conflicted and fragile ones.

Unfortunately, these links—from labor market and entrepreneurship interventions to actual employment, and from employment to stability—are based first on faith, second on theory, and last on evidence. Not surprisingly, most of these faith-based employment programs have failed to deliver jobs, poverty relief or stability, especially standard interventions such as skills training and microfinance.

The last few years, however, have seen a growing number of impact evaluations of labor market interventions, entrepreneurship, and other social protection programs. These evaluations compare program participants to comparison groups, often tracking impacts for years. This type of counterfactual-based evidence, including a growing number of randomized control trials, is beginning to show some consistent and surprising results across countries. Where the evidence is still missing, economic and political theory provide insights. This paper summarizes this literature and its implications for policy.

On the link from employment programs to actual employment

In low-income countries, poor households typically have a “portfolio of work” rather than a “job”. Commonly, each member earns income from many sources, from agriculture to casual labor to petty trade and formal work, in part because it mitigates the risk and seasonality inherent in any one source, and because it is often not possible to sustain sufficient income from a single occupation.

In this context, one way to increase work and incomes is to improve portfolios of work rather than “create jobs”. The question we focus on is how to help poor people raise their productivity in their current occupations, and how to help them access new occupations that offer higher earnings. Traditional job creation is still important since, ultimately, the end of poverty will come from having lots of small, medium, and large firms to sustain employment on a large scale. But this paper is not about the policies or conditions that might bring about that kind of long term structural change. Rather we focus on programs and policies that can be immediately implemented, and can show results, in the space of a few years.

The evidence shows that improving poor people’s portfolios of work can be done on a large scale, cost-effectively. For the most part, the tools available are a mix of safety net programs, such as public workfare, and “supply-side” interventions that try to give people and firms something they need, such as capital or skills, to raise their incomes.

Employment growth

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