Better policies to support entrepreneurs and create more jobs: A new focus on adaptation and scale
Forced business closures during the Covid-19 pandemic—and the associated economic recession and job loss, estimated at 114 million jobs worldwide—have underscored the critical role of businesses in sustaining the economy, generating long-term growth, and providing a source of income to billions.
Rebuilding local labor markets will require concentrated efforts to not just revitalize businesses, but support the creation of a new generation of enterprises. To this end, we are pleased to announce that J-PAL’s Jobs and Opportunity Initiative (JOI) is expanding its scope to test promising strategies to help meet the jobs challenge through entrepreneurship and firm growth.
Micro, small, and medium enterprises (MSMEs), among the hardest hit during the pandemic, provide over half of formal employment worldwide, and this rate is even higher in developing economies. MSMEs are a fundamental piece of the development puzzle: through creating jobs and increasing productivity, they offer a path out of poverty for business owners and employees.
Entrepreneurs launching MSMEs in low- and middle-income contexts often face additional barriers to growth, common among which are educational and managerial skills gaps and difficulty accessing critical resources for growth. What programs and policies are the most effective at helping businesses overcome these constraints?
Announcing a new entrepreneur- and firm-focused extension of the Jobs and Opportunity Initiative
J-PAL’s Jobs and Opportunity Initiative (JOI) was created in 2020 to find and test solutions to pressing employment challenges. As the global focus begins to shift towards post-pandemic recovery, supporting entrepreneurs to secure good livelihoods from their businesses, and helping firms grow their businesses and hire more people, are key policy priorities to revitalize the labor market.
JOI will now provide targeted funding to test adaptations of the most promising innovations from previous research on strategies to help entrepreneurs sustain and grow their businesses and ultimately create more jobs.
What promising strategies does JOI aim to adapt and test?
Two particular strategies show great potential given existing high-quality research and evidence.
Supporting small businesses and microentrepreneurs through alternative business training models
Traditional business training programs tend to teach a broad set of skills that small-scale firm owners (often with zero to three employees) may not find or perceive to be useful and applicable to their business. In addition, specific groups of entrepreneurs—such as women and youth—face further constraints that can limit the effectiveness of traditional training.
How can we go beyond traditional business training models to better support small businesses and microentrepreneurs? A growing body of evidence suggests that alternative training programs that are delivered one-on-one, tailored to participants’ needs, teach easy-to-apply skills, or go beyond traditional curricula to foster entrepreneurial mindsets may be more effective.
Some priority research questions include:
- What are the key constraints that women and youth face to running successful businesses, and what forms of alternative business training are best suited to helping participants overcome them?
- To what extent does long-term follow-up matter in training implementation for ensuring persistent impact?
- How do we improve the cost-effectiveness of training?
Identifying and supporting high-growth-potential entrepreneurs
Observational studies have shown that in some contexts, high-growth-potential enterprises (often known as “gazelle firms”) are a key driver of employment growth. But how do we best identify these high-potential entrepreneurs and make sure that they have the support they need to start or grow their business to its full potential?
Two studies using expert analysis by a panel of judges to predict high-growth entrepreneurs and a study using machine learning for this purpose show mixed results, suggesting that identification is indeed challenging. One potentially promising approach is to leverage non-traditional sources of information to identify high-impact entrepreneurs, such as enlisting the help of local communities to identify the best entrepreneurs (as has been evaluated in India, for example). However, how best to identify these entrepreneurs and scale selection programs remain open questions.
Grants and training targeted at high-potential entrepreneurs through business plan competitions and business accelerators (as in Nigeria and the Western Balkans) have shown promising results on business outcomes and employment. In addition, interventions that move beyond the boundary of the entrepreneur and link firms to marketplaces (as in Nigeria, Liberia, and Egypt) may fill crucial gaps not met by training or grants.
Some priority research questions include:
- What are the important determinants of success for a high-growth-potential entrepreneur, and is human judgement best for making these predictions?
- How can programs to select high-growth potential entrepreneurs be scaled up?
- What is the role of demand constraints in limiting the growth of high-potential entrepreneurs, and how can we alleviate those constraints?
- What is the optimal firm size or type to target for driving job creation?
- Under what circumstances does firm growth lead to job creation?
To learn more about the evidence on these strategies and explore more open research questions, visit our JOI Request for Proposals page and click “JOI RFP Overview.”
An emphasis on scalability
To bridge the gap between innovation and policy change, for these two areas JOI will prioritize research that builds off existing evidence to investigate the scaling potential of these promising programs and policies.
Evidence on how to further improve and scale up alternative business trainings and support for high-growth-potential entrepreneurs can be valuable to governments, civil society, the private sector, and foundations. To ensure the results from this research feed back into program design, we will draw out key lessons from across JOI-funded research and the broader body of evidence and work to get them into decision-makers’ hands.
Supporting entrepreneurs to grow, create jobs, and secure good livelihoods from their businesses will be an all-important policy focus in the aftermath of the Covid-induced recession, during which extreme poverty rose for the first time in two decades.
As we welcome our first round of proposals this fall, we encourage you to learn more about J-PAL’s Firms sector and the Jobs and Opportunity Initiative. We’ll post updates on funded projects later this year, and look forward to helping researchers and decision-makers translate results into action.
We welcome inquiries from funders and researchers interested in learning more about how to support this work. If you’d like to get in touch with us, please contact [email protected].