Wednesday, January 9, 2013

Can the very poor people be transformed into basic entrepreneurs with skills and capital?

A study done by Bandiera, Rasul and Burgess in Bangladesh shows that occupational transformation is possible. They randomized the roll-out of the Ultra Poor program (an asset transfer and skills training components), initiated by BRAC, across 1,409 communities. Half of them received the program in 2007 (the treatment group), and half of which did not receive the program until 2011 (the control groups). 

They also argue that the program, which costs roughly US$300 per household, has greater poverty impact that an unconditional cash transfer of the same magnitude. About expansion of such programs elsewhere, the authors argue that the effectiveness would depend on the implementing agencies and whether a lack of capital and skills are binding constraints to determining occupational choices.

Excerpts from their article in Ideas for India.

To help extremely poor people overcome the complex barriers they face, one idea is to encourage them to become entrepreneurs who are able to acquire skills and make use of productive capital themselves. The question is whether it can be done. Key to this question is whether giving these people cash or assets (asset transfers) can spur them on to change their occupational choices, as opposed to simply giving them more money to spend in the short term. These questions become more salient as the world is littered with examples of anti-poverty programmes that, despite their best intentions, fail to have any appreciable effect on their intended beneficiaries. 
In recent research (Bandiera et al. 2012), we evaluated an entrepreneurship programme in Bangladesh – the Ultra Poor programme, operated by the Bangladeshi NGO BRAC. The Ultra Poor programme provides asset transfers and skills training to the poorest women in rural communities. The programme aims to move these typically asset-less and unskilled women from low-wage and seasonal jobs to the more secure, self-employment based occupations, which are the choice of middle class women in these communities. We found that the very poor can be transformed from labourers into basic entrepreneurs and that this occupational transformation is associated with dramatic improvements in their economic lives, bringing them closer to the middle classes in their communities on measures such as wages and spending.

More from their results:

We find that BRAC’s Ultra Poor programme transforms the occupational choices of the targeted women. In doing so, our research supports the claim that there is indeed a causal link between lack of capital and skills to occupational choice and poverty. We look at the women in 2011 - four years after the programme began - and find that: 
  • Labour force participation rises. Ultra poor women who participated in the programme are 7 percentage points more likely to be engaged in at least one income generating activity – in other words, a job. 
  • Programme beneficiaries also increase total labour supply (hours per year), by increasing hours in self-employment (by 92% after four years) and reducing hours devoted to insecure wage work (by 26% after four years). 
  • They also increase the number of days they work each year by 36 days after four years (a 15% increase), while they decrease the average hours worked per day by 1.15 hours after four years (a 26% decrease).
  • Crucially, the programme enables women to spread their labour supply more evenly across the year, and in doing so brings them closer to full employment.
This change in occupational structure is associated with a 15% increase in productivity (measured as hourly earnings) and a 38% increase in yearly earnings, which translates into a substantial increase in per capita expenditure self-reported life satisfaction. All estimated effects are either stable or more pronounced after four years, compared with after two years, indicating that the programme sets beneficiaries on a sustainable path out of poverty.