How to create skilled jobs in poor countries? Cash transfers and self-employment in Africa

If you’ve been following the cash transfer debate on this blog, you might have seen my blog post on a paper with a pointy-headed title: “Credit constraints, occupational choice, and the process of development: Evidence from cash transfers in Uganda”.

After many, many comments, and a summer spent on revising the paper, there is a substantially new version with a new title: “Generating skilled employment in developing countries: Experimental evidence from Uganda“.

We study a government program in Uganda designed to help the poor and unemployed become self-employed artisans. The program targeted people ages 16 to 35 in Uganda’s conflict-affected north, inviting them to form groups and submit grant proposals to pay for vocational training and business start-up.

Funding was randomly assigned, and treatment groups received unsupervised cash grants of $382 per member on average. The government’s main aims were to increase in-comes and thus also promote social stability.

The treatment group invests some of the grant in skills training but most in tools and materials. After four years half practice a skilled trade. Relative to the control group, the program increases business assets by 57%, hours of work by 17%, and earnings by 38%.

We see no corresponding impact, however, on individual social cohesion, participation, anti-social behavior, or protest attitudes and participation.

Based on individual earnings alone we estimate 30 to 50% annual returns to investment from the program. We also see evidence that the treatment group grow their enterprises and hire labor, extending the employment impacts of the program.

Impact levels are similar for treatment men and women, but are qualitatively different for women — both because women begin poorer (meaning the impact is larger relative to their starting point), and because women’s enterprises and earnings stagnate without the program but take off after a grant.

The patterns we observe — high rates of investment, new business start-up, and returns on investment — are consistent with able but credit-constrained young people.

The changes reflect lessons learned in journal publishing. Stay tuned for comments.

Download freely here.