Training and Capital for Microentrepreneurs in Chile
In many developing countries, the poor have limited access to financial services that could help them launch small businesses or other entrepreneurial activities. Researchers partnered with the Chilean Ministry of Social Development to evaluate a micro-entrepreneur training and cash transfer program in Chile. They examined the effects of business training and cash transfers on individual employment and income. The program increased total employment, income, and positive business practices.
Strategies to improve employment rates and income generation among poor populations are central issues in development economics. Microcredit and micro-entrepreneurship training programs have long been considered necessary inputs to produce gains in this area. However, randomized evaluations have found only modest results for both strategies in several different contexts. Past studies have not focused on long-term outcomes nor on the combination of training and cash payments.Can the combination of training and cash payments produce significant results in the short- or long-term?
Context of the evaluation
The Chilean government launched the Micro Entrepreneurship Support Program (MESP) in 2006 to provide previously unemployed or underemployed individuals with the skills and capital required to generate income through self-employment.1 MESP included one month of administrative and business planning training, followed by three months of mentoring support. After completing the training, MESP offered participants 300,000 CLP (US$600)—approximately 4.5 times the monthly poverty line—that beneficiaries could spend on machinery, raw materials, or other inputs.Over the duration of the study, the overall Chilean economy experienced high growth rates and decreasing unemployment, meaning the overall economic environment was favorable,which is an important consideration when analyzing results and making policy recommendations.
MESP affects about 24,000 individuals annually. To qualify, one must be over the age of 18, classified by the Chilean government as economically vulnerable, unemployed or have an unstable job, and benefit from Chile’s national social programs. Approximately 95 percent of MESP participants in this study were female, 31 percent had completed only primary education, and 34 percent were unemployed prior to the program.
Details of the intervention
Researchers partnered with the Chilean Ministry of Social Development to examine how combining business training with different levels of cash transfer impacts participant employment and incomein the short- and long-term. Eligible individuals were randomly assigned to one of three treatment arms: the MESP group, who were offered the traditional MESP; the MESP-plus group, who were offered the traditional MESP as well as an additional 120,000 CLP (US$240) six months after the end of the MESP; or the comparison group, who were offered nothing.
Researchers assigned 689 individuals to the regular MESP, 693 to the modified MESP with the additional cash transfer, and 566 to the comparison group. In order to gauge short- and long-term effects, researchers conducted surveys 12 and 36 months after the start of the program, while also using administrative data to monitor effects up to 46 months after the program’s launch.
Results and policy lessons
Researchers found that both the MESP and MESP-plus significantly increased employment in the short- and long-term. In the long-term, the combination of training and cash payments increased employment, with MESP through wage-based employment only, and MESP-plus through self-employment only. Additionally, participants in both programs increased their income and derived benefits from the high quality of the training.
Impact on self-employment: In the short-term, self-employment among individuals in the MESP and MESP-plusgroups increased by 17.8 and 27.8 percentage points, respectively(from a base of 42.4 percent). In the long-term, only the MESP-plus group were more likely to be self-employed (up 7.9 percentage points from a base of 41.5 percent).
Impact on wage-employment: The MESP affected wage-based employment differently across time horizons. In the short-term, the wage-employment among individuals in the MESP-plus decreased 6.2 percentage points (from a base of 27.6 percent), while the original MESP did not have a significant effect In the long-term, however, the MESP-plus had no effect on wage-employment, while the MESP increased wage-employment rates by 9.5 percentage points (from a base of 33.1 percent).
Impact on income: In the short-term, the MESPand MESP-plus increased total labor income among participants by 35,000 CLP (US$70), a 52.7 percent increase over a base of US$133. In the long-term, the programs increased total labor income by 17,000 CLP (US$34), a 17.1 percent increase over a base of US$198.Although the long-term effect is smaller than the short-term effect is, the intervention has a substantially positive impact for both time periods.
Impact on business practices: The training program improved participants’ business practices. The MESP and MESP-plus significantly increased measures of marketing, inventory, record keeping, and financial planning among participants both 1 and 3 years after the start of the programs. In the long-term, there is a US$18 increase in the cash available for business expenses and a 35 percent increase in the availability of a book registry, as taught by the program trainings.
Impact of training quality: Training quality is important in developing the ‘general working skills’ that are valuable in the wage-labor market. Researchers measured the quality of the training with the program’s graduation rate and a quality score index including whether the program started and remained on its original schedule, whether material was delivered to participants, and the human resources available. They found that increases in these measures reflective of training quality significantly increased the wage-employment rate of participants in the long-term and monthly income of participants in both the short- and long-term. Overall, high-quality training had a lasting effect, suggesting that design of future programs shouldactively promote higher quality training.
Martinez A., Claudia, Esteban Puentes, and Jaime Ruiz-Tagle. "The Effects of Micro Entrepreneurship Programs on Labor Market Performance: Experimental Evidence from Chile" Working Paper, March 2017.