Previous work in Sri Lanka has found very low returns to capital for female-owned microenterprises, which appears to be in part due to women operating businesses in female-dominated industries with low efficient scale and little scope for growth. This project aims to evaluate the role of business training and capital in getting women who are thinking about starting a business to start it in industries with greater scope for growth, and getting women in these low return industries to switch to more profitable sectors.
Separate business training courses are being offered to randomly-selected out of the labor force women who express an interest in entering the labor force in the next year, and to randomly-selected women currently in business in female-dominated low-return occupations. Half of those who complete the training will also receive a cash grant. One of the innovations of this work is not working with the existing clientele of a microfinance organization, but rather in seeing what the returns to such services are to the average poor woman. This informs us of the potential demand for such services, and can help identify the segments of the population not currently well-served by existing institutions.
A large fraction of the labor force in many developing countries is self-employed, but few of these self-employed individuals ever make the jump to hiring paid employees. A cross-cutting intervention will evaluate the impact of three policies aimed at helping small firm owners to make that jump.
The first is business training. The second is a wage subsidy for the first six months of hiring a new worker. The third is a matched savings program to encourage small business owners to accumulate sufficient capital to make the necessary investments needed to make an additional worker profitable.
We randomly provide these three programs to microenterprises, also interacting the treatments so that we can see, for example, whether business training has more impact if also coupled with savings, or whether wage subsidies work better for the self-employed who have receiving training on how to grow their businesses.
In this project, the research team will offer a randomly selected group of male microenterprise owners in urban areas of Sri Lanka the International Labor Organization’s Improve Your Business (IYB) training. Some of the firms receiving training will also receive one of two complementary interventions, to enable us to test whether the impact of business training depends on relaxing capital constraints (through a matched savings program) or labor market constraints (through a short-term wage subsidy to encourage firms to hire workers). The study will use a randomized design that will assign firms identified through a household survey to six treatment groups (training only, training + savings, training + wage subsidy, wage subsidy only, savings only, savings, savings + wage subsidy) and one control. As clients will be randomly assigned to the groups, any systematic difference in outcomes between the treatment and control can be attributed to the access, or lack thereof, to training, capital and labor.
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