Employment generation

Can microentrepreneurs generate employment?

December 7, 2011

Speaker: Chris Woodruff, Warwick University; Oriana Bandiera, LSE

We present preliminary results from a project assessing constraints to employment generation among microenterprises among microenterprise owners employing 0-2 paid workers at baseline. Working with a sample of 1,600 enterprises in urban areas of Sri Lanka, we conduct a randomised control trial providing incentives for capital investments (a matched savings programme), training and incentives for hiring additional workers. We find lasting positive employment effects of a temporary wage subsidy and positive employment effects of the matched savings programme. About 17% of owners offered a subsidy equal to roughly 50% of an unpaid worker salary hire an additional paid worker during the six months when the subsidy is offered. A year after the subsidy is removed we find that those in this treatment arm are about 8 percentage points more likely to employ at least one paid worker. Microentrepreneurs offered the chance to participate in a matched savings programme show higher levels of capital investment and are about 6 percentage points more likely to have a paid employee. By contrast, we find no significant employment effects and only marginal effects on sales or investment for those offered microenterprise training program based on the ILO's standard microenterprise training program.

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