Who are the entrepreneurs andwhat constraints do they face?Labor Markets Core CourseYoon Y. ChoLabor Markets Team, HDNSP
Who are the entrepreneurs? (1)• Which person comes to your mind first?2
Who are the entrepreneurs? (2)• What about these people?3
Who are entrepreneurs? (3)What makes them entrepreneurs?• New ideas/innovation• RisksAre they an engine of growth?• Yes: f...
Can/Should entrepreneurship bepromoted?Can entrepreneurship be promoted?• Yes: a bit of capital, a bit of skills, a bit of...
Should we promote entrepreneurship?It seems that we don’t have any other choice.• Wage and salary employment is lesspreval...
Even with the best case scenario,wage jobs wouldn’t be sufficient7Based on simulation with the Sub Saharan African countri...
Then the questions are…HOW?FOR WHOM?WHAT?8
To answer these…A conceptual frameworkProfilesConstraintsPolicy tools9
A Conceptual framework for understandingself-employment and entrepreneurship10Wants toexpand?Wants to moveinto other selfe...
But the world is not withoutconstraints• The wage and salary jobs that people want may not be available• The entrepreneur ...
12Profiles of the self employed andentrepreneurs(based on Gindling and Newhouse, 2012)
Are the entrepreneurs better orworse off than wage employees?Comparing household income:• Wage employees live in wealthier...
…must be correlated witheducation…Table 5: Mean years of education completed by education category, by region and income g...
What kind of jobsare they doing today?150%10%20%30%40%50%60%70%80%90%100%wage andsalarynon paidemployeeemployer own accoun...
Is youth entrepreneurshipa reality today?160.05.1.15.220 40 60Age Yearsown_account employernon_paid_employeeMale0.02.04.06...
Lessons from profiling…• Differences in observable characteristics…– Compared to wage and salaried workers, self employedw...
Why aren’t those who have highpotential successful…• Unobservable characteristics & constraints…
19Constraints
Business Environment– Excessive Bureaucracy– Restricted Access to Finance– Uncertain Regulatory Environment– Corruption– R...
How to assess the constraints?• Individual constraints– Psychometric Tests– Household Surveys– Standardized Assessments (P...
1) Desire and passion: I have a fervent drive to succeed and zeal forthe tasks required2) Energy: I have stamina to tackle...
Example: individual constraint – entrepreneurialtraits (Kauffman Foundation)6) Self confidence: I believe that somehow I c...
Example: business environment24
Example: Assessing social constraints: socialnetworks1. Is there a[GROUP] in yourcommunity?Yes…1No..22. Are you anactive m...
Multiplicity & Diversity ofConstraints• Of course, none of the tools are perfect – suggestive evidence,but more info is be...
27Entrepreneurship Programs
Tools to address constraints28Constraints Programs Examples EffectivenessIndividual : Lack of Skills Training Vocational a...
Examples: Training29• Vocational training: addressing lack of technical skills- Malawi (Cho et al. 2013) -- apprenticeship...
Examples: Access to finance300% 20% 40% 60%Loans, credits (financial)Loans guaranteesIn-kind creditsScholarshipsPrizes, Gr...
Examples: Consulting/advisoryservice31• India: business advisory service (Bloom et al. 2011)- Significantly improved profi...
Yarn piled up so high anddeep that access to backsacks is almost impossibleYarn inventory management before advisory servi...
33Stock is organized, labeled,and entered into anElectronic ResourcePlanning (ERP) systemwhich has details of thetype, age...
34Improved yarn inventory storage system after advisoryserviceShade cards nowproduced for allsurplus yarn. These aresent t...
Among these menu of options……what programs to implement?• Maybe those that are proven to be effective…– But only limited e...
36THANK YOU!
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Labor Markets Core Course 2013: Who are the Entrepreneurs and What Constraints Do They Face?

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Labor Markets Core Course 2013: Who are the Entrepreneurs and What Constraints Do They Face?

  1. 1. Who are the entrepreneurs andwhat constraints do they face?Labor Markets Core CourseYoon Y. ChoLabor Markets Team, HDNSP
  2. 2. Who are the entrepreneurs? (1)• Which person comes to your mind first?2
  3. 3. Who are the entrepreneurs? (2)• What about these people?3
  4. 4. Who are entrepreneurs? (3)What makes them entrepreneurs?• New ideas/innovation• RisksAre they an engine of growth?• Yes: for Steve Jobs• Sorry, but no: for cotton candy makersCan everyone be entrepreneurs?• No: not everyone can be Bill Gates• Yes: as long as you improve a bit in what you aredoing --- a self employed person  entrepreneur4
  5. 5. Can/Should entrepreneurship bepromoted?Can entrepreneurship be promoted?• Yes: a bit of capital, a bit of skills, a bit of knowledge, abit of networks…• No: it depends on the innate ability and traits---willingness to take risks and try out new things.Should entrepreneurship be promoted (with publicfunding)?• No: those who are born with the entrepreneurialabilities would become one even without anypromotion, and investing public funds is waste.• Yes: there are a number of market failures andinefficiencies such as limited access to credits thatrequire government intervention.5
  6. 6. Should we promote entrepreneurship?It seems that we don’t have any other choice.• Wage and salary employment is lessprevalent in the developing world• Many people whose primary job isfor a salary or agriculture have a selfemployment activity as a secondaryrevenue source.• MSEs (Micro and Small Enterprises)remain the main source of jobs inthe developing world• When jobs are needed butemployers are not creating them,self-employment andentrepreneurship is a way for peopleto create their own jobs6020406080100Percentofworkers300 500 1000 2500 5000 10000 25000 50000Per Capita GDPNon-ag unpaid Non-ag own accountNon-ag employer Non-ag wage and salariedAll agricultural workersAGRICULTURALWORKERSSALARIED WORKERSSELF-EMPLOYED
  7. 7. Even with the best case scenario,wage jobs wouldn’t be sufficient7Based on simulation with the Sub Saharan African countries, even with anannual wage job grow rates at 8 percent, wage employment share would bebetween 8-25 percent.
  8. 8. Then the questions are…HOW?FOR WHOM?WHAT?8
  9. 9. To answer these…A conceptual frameworkProfilesConstraintsPolicy tools9
  10. 10. A Conceptual framework for understandingself-employment and entrepreneurship10Wants toexpand?Wants to moveinto other selfemployment?WAGEEMPLOYMENTPROGRAM (to enablereorientation to analternative sector)NOYESCurrently self-employed?NOYESWants to startup a business?NO WAGEEMPLOYMENTYESConstraintsassessmentEconomicallyviable?NOYESPROGRAM (tofacilitate growth/ Startup in sector selectedby individual)YESIs happy withstatus quo?NONOHas enoughinformation?YESYESENDProvideinformationNOConstraintsassessment
  11. 11. But the world is not withoutconstraints• The wage and salary jobs that people want may not be available• The entrepreneur may want to expand but lack access to capital• A business that is not viable initially might be profitable if theindividual were better at it• An individual may lack ideas about what to do, but giving a goodplan could make it work• A person may be located in an environment where he/she is cut offfrom profitable value chains• etc..11
  12. 12. 12Profiles of the self employed andentrepreneurs(based on Gindling and Newhouse, 2012)
  13. 13. Are the entrepreneurs better orworse off than wage employees?Comparing household income:• Wage employees live in wealthier households than own-account workers• Employers live in wealthier households than wage or own-account• Agricultural workers live in poorest households13253342273637122564283438493517353332020406080100percentWage and Salary Non-Paid Employee Employer Own Account Agriculture Not EmployedAll Low and Middle Income Countriestercile1 tercile2tercile3
  14. 14. …must be correlated witheducation…Table 5: Mean years of education completed by education category, by region and income groupNon-agricultureWageandSalariedWorkerNon-paidEmployees EmployerOwnAccount AgricultureNotEmployedAll Countries 9.4 7.1 10.4 6.9 4.2 6.7East Asia and Pacific 10.3 8.3 9.8 7.5 5.7 8.5Europe and Central Asia 13.0 10.5 12.8 10.5 10.0 10.2Latin America and Caribbean 9.8 8.5 10.4 7.7 4.8 7.7Middle East and North Africa 9.3 6.8 10.2 7.2 5.7 8.4South Asia 7.0 6.4 10.3 6.2 3.4 5.3Sub-Saharan Africa 9.6 5.7 8.3 6.2 4.2 6.3Low Income 6.7 6.0 7.8 5.3 3.9 4.9Lower Middle Income 8.5 6.9 10.1 6.8 4.1 6.2Upper Middle Income 10.9 8.9 11.0 8.2 6.5 8.814
  15. 15. What kind of jobsare they doing today?150%10%20%30%40%50%60%70%80%90%100%wage andsalarynon paidemployeeemployer own accountholderothersservicesretailconstructionmanufacturing• Wage and salary --- tend to be concentrated around the service sector• Own account holder --- retail• Caution --- huge variation across regions…
  16. 16. Is youth entrepreneurshipa reality today?160.05.1.15.220 40 60Age Yearsown_account employernon_paid_employeeMale0.02.04.06.08.120 40 60Age Yearslown_account employernon_paid_employeeFemale
  17. 17. Lessons from profiling…• Differences in observable characteristics…– Compared to wage and salaried workers, self employedworkers tend to be older, less educated, and engage in theretail sector.– Huge heterogeneity in successful vs. less successfulentrepreneurs (successful=being employers, wealthy)• Differences in observable characteristics are not all thatexplains one’s success in business– Profiles of the successful vs. less successful– Calculate the probability of success based on their profiles– There are many individuals who have exactly the sameobservable features [such as gender, age and education] withthe successful entrepreneurs, but are not successful.
  18. 18. Why aren’t those who have highpotential successful…• Unobservable characteristics & constraints…
  19. 19. 19Constraints
  20. 20. Business Environment– Excessive Bureaucracy– Restricted Access to Finance– Uncertain Regulatory Environment– Corruption– Restricted Access to ServicesWhat sorts of constraints can affectentrepreneurial success?Three broad typesSkills / Individual Level:– No Business knowledge– Illiteracy– Insufficient EducationSocial Environment– No Mentors– Cultural factors– Societal Stigmas– No safety net (in case of failure)– No Exposure to“Entrepreneurship”– No basic skills– Language Barriers– No entrepreneurial traits
  21. 21. How to assess the constraints?• Individual constraints– Psychometric Tests– Household Surveys– Standardized Assessments (PISA/TIMSS)– Educational Administrative Records• Business Environment– ICA / Informal Sector Employer Survey– Doing Business Legal Framework Analysis– NGO / Consultancy Reports• Social Environment– Household Surveys– Focus Groups– Sociological Research– NGO / Consultancy Reports
  22. 22. 1) Desire and passion: I have a fervent drive to succeed and zeal forthe tasks required2) Energy: I have stamina to tackle problems3) Ability to Thrive on Uncertainty: I can prosper in an environmentwith many questions and few answers4) Persuasiveness: I convincingly communicate with others –bankers, vendors, employees5) Self Discipline: I can do the tasks necessary to succeed, whetherpleasant or unpleasantExample: individual constraint – entrepreneurialtraits (Kauffman Foundation)
  23. 23. Example: individual constraint – entrepreneurialtraits (Kauffman Foundation)6) Self confidence: I believe that somehow I can solve whateverproblems arise7) Ethics: I deal with others with honesty and integrity8) Problem solving: I have an ability to anticipate and troubleshootproblems9) Networking: I connect with others and build strategicrelationships10) Business knowledge: I have a basis for making effective,profitable business decisions
  24. 24. Example: business environment24
  25. 25. Example: Assessing social constraints: socialnetworks1. Is there a[GROUP] in yourcommunity?Yes…1No..22. Are you anactive member ofthis [GROUP]?Yes….1No…23. How much input doyou have in makingdecisions in this[GROUP]?Self-help group, non-credit relatedFormal trade, business, or professional associationsMicro-finance groupInformal savings or loan group
  26. 26. Multiplicity & Diversity ofConstraints• Of course, none of the tools are perfect – suggestive evidence,but more info is better than less…E.g., business environment: requirement of collateral & individualconstraints: access to finance• Interventions need to target the relevant and commonconstraints: some constraints are common to allE.g. Mexico (Bruhn 2012): the number of procedures=15 , days=67 toregister a business  Reform in 2002 to the number of procedure =2, days=3 number of new firms significantly increased• Some populations face specific constraints• Women/Youth• Rural / Remote• Fragile States / Demobilized• Lower Castes• Profile the binding constraints Design tailored programs
  27. 27. 27Entrepreneurship Programs
  28. 28. Tools to address constraints28Constraints Programs Examples EffectivenessIndividual : Lack of Skills Training Vocational and/or business training oftencombined with financing and counseling(Uganda, Malawi, Liberia, etc)Comprehensive entrepreneurship modellike BRAC, IRCA large knowledge gap exists: emerging patternsare that youth benefit most especially fromtechnical skills training with counseling; (relativelyshort) business training can make difference.Business environment:Limited access to financeMicrofinanceand grantsMicrofinance: Many countries includingBangladesh, Pakistan, India, Morocco,Mongolia, etc.Grants/in-kind transfer: Sri Lanka, Mexico,GhanaMixed results between different target group withdifferent goals (setup vs. expansion); Usuallylarger effects on prospect than existingentrepreneurs; can be more effective forfinancially constrained enterprises.Social: Lack ofnetwork/informationAdvisoryservice aspart oftraining orvalue chainintegrationCounseling, psycho-social support,mentoring, role model setting, andconsultingAshoka, Endeavor, SEWAUseful to complement training
  29. 29. Examples: Training29• Vocational training: addressing lack of technical skills- Malawi (Cho et al. 2013) -- apprenticeship training for vulnerable youth- Uganda (Blattman et al. 2012) – training+grants for vulnerable youth- Liberia -- AGI• Business training: addressing lack of managerial and businessskills- ILO– KAB (Know about business) etc…• Financial training: addressing lack of financial literacy andaccounting- Usually among existing entrepreneurs, microcredit clients, etc. who havebasic knowledge and skills- Bosnia & Herzegovina
  30. 30. Examples: Access to finance300% 20% 40% 60%Loans, credits (financial)Loans guaranteesIn-kind creditsScholarshipsPrizes, GrantsEquity InvestmentsAccess to Fixed AssetsCrowdfundingAccess to FinancialMarkets• Based on global inventory• Various approaches• Combinations of them
  31. 31. Examples: Consulting/advisoryservice31• India: business advisory service (Bloom et al. 2011)- Significantly improved profits- Caveat: experimented for large firms- Experiments being conducted in MSMEs…
  32. 32. Yarn piled up so high anddeep that access to backsacks is almost impossibleYarn inventory management before advisory serviceDifferent typesand colors of yarnlying mixedYarn without labeling,order or dampprotectionA crushed yarn cone, which isunusable as it leads to irregularyarn tension32
  33. 33. 33Stock is organized, labeled,and entered into anElectronic ResourcePlanning (ERP) systemwhich has details of thetype, age and location.Bagging and racking yarnreduces waste from rotting(keeps the yarn dry) andcrushingComputerized inventorysystems help to reducestock levels.Yarn inventory storage system after advisory service
  34. 34. 34Improved yarn inventory storage system after advisoryserviceShade cards nowproduced for allsurplus yarn. These aresent to the designteam in Mumbai to usein future products
  35. 35. Among these menu of options……what programs to implement?• Maybe those that are proven to be effective…– But only limited evidence exists…– After the break: (based on Cho and Honorati, 2012) “Whatdo we know about the impact of Self-employmentprograms?”• Monday morning: discuss most commonly used tools– “How to Provide Access to Finance to the Self-employedand Small Entrepreneurs”– “Entrepreneurship Training”• Tuesday morning: discuss innovative andcomprehensive approaches– “Inclusive Value Chains”– “microfranchising”35
  36. 36. 36THANK YOU!

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