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Do Micro-Entrepreneurship Programs Increase Wage-Work? Evidence from Chile 1 Claudia Martínez A. 2 Esteban Puentes 3 Jaime Ruiz-Tagle 4 This Version: June 2015 Abstract Using a randomized controlled trial of a large-scale, publicly run micro-entrepreneurship program in Chile, we assess the effectiveness of business training and asset transfers to the poor. Using survey and monthly administrative data we study the effects of the program over a period of 46 months. We find that the program significantly increases employment by 15.3 and 6.8 percentages points 9 and 33 months after implementation, respectively. There is also a significant increase in labor income. The employment increase in the short run is through self-employment, while in the long run wage work also increases. In the long run, total labor increases mostly due to an increase in wage income. This is consistent with the hypothesis that skills taught during the training lessons are also useful for wage work. We also find that the quality of the intervention matter, especially in the long run. Finally, comparing two levels of asset transfers, different employment paths emerge: those who receive a low level of transfers mostly end up with salaried work whereas those who receive a high level of transfers tend to be self-employed. JEL Classification: J14, O12, L26, M53. Keywords: Micro-entrepreneurship training, self-employment, wage work. 1 We are grateful to Marcela Basaure, Pablo Coloma, Ghia Gajardo, Marcos Sánchez, Claudio Storm, and FOSIS for their close collaboration on the impact evaluation. We also thank María Ignacia Contreras, Víctor Martínez, Cristián Sánchez, and Pablo Guzmán for their excellent research assistance. We are also indebted to Taryn Dinkelman and Tomás Rau for their useful comments. The authors acknowledge financial support from the International Initiative for Impact Evaluation (3ie) and FOSIS. Puentes and Ruiz-Tagle also acknowledge financial support from the “Iniciativa Científica Milenio” (Project NS100041). Martínez A. and Puentes are also grateful for the funding provided by Fondecyt, project number 1140914. 2 Corresponding author. Department of Economics, Pontificia Universidad Católica de Chile. Email: clmartineza@uc.cl. Phone: (562) 354-4303, Fax: (562) 553-2377. Address: Avda. Vicuña Mackenna 4860, Macul, Santiago, Chile 3 Centre of Micro Data and Department of Economics, University of Chile. Email: epuentes@econ.uchile.cl. 4 Centre of Micro Data and Department of Economics, University of Chile. Email: jaimert@econ.uchile.cl. 1
1 Introduction Income generation strategies for poor populations are at the cornerstone of the questions in development economics. For years, micro-entrepreneurship has been seen as a plausible strategy to boost the income of vulnerable households, considering that small firms are an important source of employment in developing countries. A number of initiatives have promoted micro-entrepreneurship training and microcredit programs as a necessary input to create the conditions for its development. Randomized impact evaluation studies have found modest results for both policies (McKenzie and Woodruff, (2013), Banerjee, Karlan and Zinman (2015)). Although there is a growing literature regarding the impact of micro-entrepreneurship training programs, there is still little evidence about what are the effects of such programs in the long run and what are the mechanisms that lead those effects. McKenzie and Woodruff (op. cit.) summarize fourteen studies noting that these studies account for effects at most two years after treatment. Regarding the type of program, the combination of training and asset transfers has not being studied profoundly, the exception being the study by de Mel, McKenzie and Woodruff (2014) who find positive results only for new owners in the short run. Moreover, the vast majority of the papers in the literature consider non-government micro-entrepreneurship programs, so that the scalability of the results has not been sufficiently supported. We conducted an impact evaluation of a public micro-entrepreneurship program targeted to the very poor in Chile. We randomly assigned over 1,900 applicants, both current business owners and individuals interested in opening a business, to receive training combined with two levels of asset transfers. Our study considers a span of 38 months through survey data and a span of 46 months using high frequency administrative records, allowing for the longest-term assessment of micro entrepreneurship programs in developing countries. 5 As far as we know, this is the first study that uses administrative data, which enables us to understand the labor market impact beyond what is declared in survey data. The program “Micro-entrepreneurship Support Program” (MESP) 6 is administered by the Chilean Ministry of Social Development and has more than 24,000 beneficiaries per year. MESP has two 5 To the best of our knowledge, only the ‘Project Growing America through Entrepreneurship’ (GATE) implemented in United States is evaluated for a longer time span (60 months). See Fairlie, Karlan and Zinman (2015). 6 In Spanish, the program is known as “Programa de Apoyo al Microemprendimiento” (PAME). In 2011 its name was changed to “Yo Emprendo Semilla” (YES). 2
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