Kelsey Jack is an Assistant Professor of Economics at Tufts University.
When one part of the local economy fails, it spills over into other parts of the economy. Maybe this isn't so surprising. However, recent research in Zambia highlights a less obvious link: farmers who can't get access to credit during the hungry season (January to March) increase their off-farm labor supply, drive down wages, and maybe even undermine their own agricultural yields. This matters greatly given that small-scale farming remains the primary source of income for the vast majority of the rural population in Zambia, with typically low levels of productivity and farming income. Fortunately, there is new evidence that providing consumption loans can help farmers invest in their own fields, and — we hope — boost their productivity.
Experimental harvest of provitamin A-enriched orange maize, Zambia, 2010.
Photo credit: Flickr @CIMMYT
Coping with not enough credit for food
A few years ago, two colleagues (Günther Fink of the Harvard School of Public Health and Felix Masiye of the University of Zambia) and I began working in rural Zambia on projects ranging from health and the environment to agriculture. As we spoke to rural smallholder farmers around the country, we kept hearing the same story. Farmers described how they ran out of food in the "hungry season" (the months leading up to harvest time) (see figure), which forced them to cope by resorting to working ganyu, a term for casual day labor typically done on nearby farms. But this meant neglecting their own fields, which hurt their own harvests. Thus, farmers were essentially borrowing against their future harvest, lending out their most available asset — their own labor.
Seasonal patterns in rural Zambia
Source: Midline survey data, Chipata Food Loan Project.
We wondered if other ways of accessing food were available — such as through a loan with reasonable interest — would farmers prefer to take that option. To try to answer this question, we used a randomized control trial that offered short-run food loans to farmers in randomly selected villages in Chipata District in the eastern part of Zambia. We offered farmers in selected villages up to three bags of maize flour during the hungry season (enough to cover the consumption needs of an average household over a three-month period) and asked them to repay in maize after the harvest.
The outcome was extremely positive. First, farmers wanted the loans: 95 percent of those offered the loan took it up. Second, farmers were able and willing to repay: among those who took out a loan, over 95 percent repaid in full. But most important, there were positive effects on consumption, the labor supply, and wages. Specifically, when compared to a randomly assigned control group, the farmers with loans missed almost 50 percent fewer meals and were forced to look for ganyu 25 percent less often. Most remarkably, local wages increased substantially. (See our paper, "Seasonal Credit Constraints and Agricultural Labor Supply: Evidence from Zambia" for more details on the study and a summary of related literature).
Our findings contribute to a growing literature, mostly coming out of anthropology, that documents the consumption-smoothing role that ganyu plays for small farmers in Southern Africa. This, in turn, relates to the larger economic literature that documents how households cope with periods of shortage or urgent need when they don't have access to credit. While other studies have shown that labor supply does adjust to help families cope, its role in helping to address seasonal shortages has only been addressed through one previous study on seasonal migration in Bangladesh (Bryan, Chowdhury and Mobarak 2013). The bottom line is that together these studies point to poorly functioning credit markets that distort the off-farm labor supply decisions of poor farmers and hurt other laborers by lowering wages.
Weighing loans to finance consumption
So what can be done to help poor farmers gain access to credit? Traditionally, loans to finance consumption, especially for the poor, haven’t been seen as viable, largely because the spillover from the credit market to the labor market in rural developing countries hasn't been well understood. But if we can document effects on agricultural yields from higher consumption and less off-farm labor, that may change. Indeed, if higher yields in one year translate into less ganyu in the next year, then a loan intervention may help farmers escape from a regular cycle of low yields, hunger, and off-farm labor. To test this assertion, we are in the middle of scaling up the project to learn more about the effects on agricultural yields. More findings to come!
Kenneth Kraemer is a Research Professor at the Paul Merage School of Business, UC Irvine
As developing countries weigh how to enter the high stakes R&D arena, a big question is how to boost the chances of benefiting from successful innovation. Kenneth Kraemer – Research Professor in the Paul Merage School of Business and Co-Director of the Personal Computing Industry Center, UC Irvine – tells the JKP that a country cannot expect to benefit in areas where it lacks firms with experience and capabilities, and markets. Thus, the best route is to invest in R&D recognizing that the probability of success is small, monitor global developments in fields where domestic firms are strong, and increase domestic capability to learn from advances elsewhere. So cutting edge or imitate? At this point, he says, most developing countries – other than China – don’t have the capacity to dive into cutting edge research. Rather, they should focus on being fast imitators, maneuvering to become a player in what’s now a global supply chain.
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Baptiste Cammareri is a Communication Manager at the Association la Vôute Nubienne (AVN)
Masons building a Nubian vault home in the Sahel. Photo credit: Association La Vôute Nubienne
While many development projects turn to the latest technologies for solutions, a Burkino Faso-based NGO, Association la Vôute Nubienne (AVN), draws on an ancient Nubian vault technique to help people in the Sahel build their homes. The project—"A Roof + A Skill + A Market"— facilitates apprenticeships with masons to develop an autonomous, self-sustaining market in affordable housing in sub-Saharan Africa. It was the runner-up for Most Promising Approach in the JKP’s Experiences from the Field contest (link to overview blog). Baptiste Cammareri, AVN Communication Manager, told the JKP that the project is quite unusual in that it furthers development without creating dependency. He also emphasized the value of looking at how a society's elders once solved local problems, because answers to today's challenges often lie in local materials and traditional know-how. AVN (active in Burkino Faso, Senegal, and Mali) says that more than 12,000 people currently use, live in, or sleep in a Nubian vault building. <iframe src="https://cdns.snacktools.net/tubesnack/embed_https.html?hash=tt90b33c&wmode=window&bgcolor=FFFFFF&t=1383669024" width="640" height="535" seamless="seamless" scrolling="no" frameborder="0" allowtransparency="true"></iframe>
Gianfranco Commodaro is the Director in Minas Gerais, AVSI Foundation
A convict in a Minas Gervais APAC ©AVSI Foundation
Brazil has the fourth largest population of inmates worldwide, a recipe for overcrowded, violent, inhumane prisons, and significant HIV/AIDS and tuberculosis infection rates. In the hopes of reducing recidivism and crime and improving human dignity, Brazil has adopted the APAC (Association of Protection and Assistance for Convicts) Professional Qualification Project, which relies on education, professional training, work, and psychological job training to help convicts gain employable skills while still in prison. This project was the winner of the Most Promising Approach in the JKP’s spring Experiences from the Field contest (link to overall blog). The APAC prison model has been replicated abroad in Asia, Eastern Europe, South Asia, and other parts of Latin America.
We recently spoke with Gianfranco Commodaro, the Minas Gerais Director for the AVSI Foundation, an Italian NGO that’s a strategic APAC partner. He said the APAC project has helped dramatically reduce recidivism in Brazil, from 80-85 percent in the public penitentiary system to about 10 percent in APACs. He attributes the project’s success to the active participation of all segments of society, including the public and private sectors, as well as civil society. The government helps with supportive policies—such as laws promoting reintegration and tax incentives for companies to hire former inmates—although he said it’s an ongoing challenge to convince businesses to do so.
Moseri Mac Samuel is a Deputy CEO of the Innovation Empowerment Program, Kenya
©One Hen Campaign
In rural Kenya, a small civil society group founded in 2009 by a few University of Nairobi recent graduates, Innovation Empowerment Programme (IEP), has been trying to economically empower low income women and youth with the One Hen Campaign Project. The way it works is that instead of cash, IEP gives a microloan in the form of a hen and a cage plus training to youth and women to support entrepreneurship with poultry products. Recipients pay IEP back not with cash but with two chicks that are then lent to others. This project was the winner for the Most Promising Approach in the JKP’s spring Experiences from the World contest (link to overview blog
We recently asked Moseri Mac Samuel, Deputy Chief Executive Officer of the IEP, about how the program is doing. He told us that the project now benefits 4,000 people, with incomes rising more than $400 per year for each family. One single mother with four kids has even managed to parlay 1 hen into 25 hens and a village salon, helping her to feed and educate her family. However, coping with a lack of microcredit from financial institutions to reinvest in projects is an ongoing challenge, one that Samuel feels stems from a pervasive—and incorrect—view that youth aren't creditworthy.
Laura Wallace is the Jobs Knowledge Platform Blog Editor
In Kisii County, Kenya, village youth and women receive a hen and a cage. In Minas Gerais, Brazil, prisoners receive job training, sometimes leaving for work during the day and coming back at night. In Dendjola, Mali, masons are taught a 3,000 year-old building technique. And globally, thousands of employers and workers are offered an online workplace to connect without geographic limits.
"My Hen My Future" © One Hen Campaign Project
These are the novel approaches that some winners of the JKP's Experiences from the Field (EFF) contest, concluded in spring 2013, are taking to create jobs and improve employment opportunities. The seven winners—from North Africa, Sub-Saharan Africa, Latin America, South Asia, Europe and Central Asia, and North America—represent innovative efforts of NGOs, governments, academia, social enterprises, donors, and international organizations (see box). The JKP launched the EFF contest in spring 2012 to create a space to showcase examples of projects on the ground, so that people and institutions could easily learn from each other's experiences, successes, and failures. The database is now filled with project profiles and results on more than 136 initiatives that can be sorted by country, region, or type of intervention. Together, the EFF winners highlight how one person, or a few colleagues, can have a far-reaching impact on an individual's life, and even on a village or region, just by pursuing one idea at a time. Over time, these projects as a group boosted wages, incomes, skills, job creation, self-sufficiency, and ownership. They have also together lowered crime and violence, recidivism, jobless rates, isolation, hopelessness, and poverty. They are doing this by improving access to information and offering skills training—in the process, transforming, and in some instances revolutionizing, how the labor market functions. Time to Innovate, One Project at a Time Despite the diversity of the projects—in approach, size, and country circumstances—a number of best practices stand out.
L-shaped Nubian vault home in the Sahel. Photo Credit Association La Vôute Nubienne
First, answers can come from both cutting-edge and ancient techniques. The Babajob and oDesk projects show us that mobile apps, digital exchanges, and online exchanges can overcome a variety of hurdles—geographic, economic, political, bureaucratic, and social—to better connect employers and jobseekers. The Nubian vault project, which adapts an ancient Egyptian building technique—timberless vaulted roofs made of earth (adobe) bricks, using only locally sourced materials (earth, water, rocks)—suggests that it's one’s ancestors that might be worth consulting [See video].
Second, development can be facilitated without creating dependency. The key is teaching those with very little how to build their own income stream and ameliorate a bad situation. In Burkino Faso, it's a virtuous circle of clients, masons, and apprentices [See video]. In Kenya, one single mother with four kids managed to parlay one hen into 25 hens and a village salon, helping her to feed and educate her family [See video].
Third, it's critical to involve all the stakeholders. For APAC (Associação de Proteção e Assistência aos Condenados), this meant getting the buy-in of the public and private sectors, as well as civil society—there are now Brazilian laws promoting reintegration and tax incentives for companies to hire former inmates. In India, Babajob hopes the government will help the informal worker job market by providing accurate data on jobseekers [See video].
Fourth, give people the chance to transform themselves. In Tunisia, a university graduate program helps students turn themselves into entrepreneurs. In Azerbaijan, an internally displaced persons (IDP) project helps youth move beyond isolation and hopelessness to start businesses or secure jobs. In Brazil, a rehabilitation project offers prisoners the chance to demonstrate their employability [See Video].
A convict in a Minas Gervais APAC training for a job. Photo Credit AVSI Foundation
Fifth, give youth a chance to demonstrate creditworthiness. A key development constraint in many countries is lack of microcredit, especially for youth. In Tunisia, some prize-winning projects weren't realized because of a lack of sufficient credit. The One Hen Campaign is managing with awards and a few grants, but says it's time for financial institutions to realize that there's a new breed of youth who are creditworthy [See video].
One Village Hen, One Borderless Job
So there we are. Fighting poverty in Kenya one hen at a time. Reducing violence and recidivism in Brazil, one APAC prison at a time. Building ecological houses in the Sahel, one Nubian vault at a time. Creating entrepreneurs out of university graduates in Tunisia, one business plan at a time. Giving hope to young IDPs in Azerbaijan, one vocational course at a time. Connecting the informal sector in India, one mobile call at a time. And freeing people globally to work together without geographic limits, one borderless job at a time.
In Parts 2, 3, and 4 of this EFF contest series we'll take a closer look at the One Hen Campaign Project, the APAC Professional Qualification Project, and A Roof + A Skill + A Market.
|Winners of the spring 2013 Experiences from the Field (EFF) contest |
Most Recommended (Most Popular Approach)
Winner: One Hen Campaign Project. Gives a hen and training to youth and women in rural Kenya to support entrepreneurship with poultry products.
Runner-up: oDesk's Online Work. Provides an online workplace to enable skilled people in developing countries or facing weak job markets to obtain jobs; helps businesses thrive with limited resources.
Most Promising Approach
Winner: APAC's Professional Qualification Projects. Teaches employable skills to inmates in Brazil.
Runner-up: A Roof + A Skill + A Market. Facilitates apprenticeships with masons to develop a self-sustaining market in affordable housing in the Sahel.
Runner-up: Babajob.com. Offers a digital job exchange for informal sector and entry-level workers in India to make access to nearby, better paying jobs available to everyone via Voice, SMS, mobile apps, and the web.
Best Addresses Political Economy and Implementation Challenges
Winner: Turning Theses into Enterprises. Increases self-employment among university graduates in Tunisia by improving skills and shaping attitudes toward entrepreneurship.
Runner-up: Azerbaijan Internally Displaced Persons (IDPs) Youth Support Project. Offers vocational training and small business support to young IDPs to boost social inclusion, employment, and entrepreneurship.
Winners in the Most Recommended category were selected by open, online voting. The other winners were selected by the JKP's partners (IZA, IDRC, McKinsey, ERF, LACEA, Fedesarrollo, and REALM/AMERU. The top contestant in each category received a $5,000 cash prize.
By Mary Hallward-Driemeier (Lead Economist) and Tazeen Hasan (Extended Term Consultant), Office of the Chief Economist, the World Bank
Madame Ngetsi wanted to start a business in the Democratic Republic of Congo. What was her first step was in making her dreams a reality? Did she go to a bank for a loan, a notary to formalize her documentation, or the company registry to register her company? In fact, her first stop was to go to her husband to get legal permission to start her business. By law, Madame Ngetsi has to have written legal permission to register a business, formalize a document, open a bank account, and register land — a requirement that doesn't apply to her husband.
You might wonder where this restriction exists. The reality is that it's not in commercial codes, but in the family code, which is all too often ignored by those seeking to improve the business environment. You may also think that this law is not enforced in practice, but it is. The good news is that these laws are starting to change, and there are steps that women can take to protect their rights — although they still face enormous practical constraints beyond the legal ones.
Mapping the Restrictions So exactly how pervasive are these restrictions in Africa? This is an issue that we tackle in our new book Empowering Women: Legal Rights and Economic Opportunities in Africa, where we map the legal constraints, like those faced by Madame Ngetsi, across all 47 countries in sub-Saharan Africa. We also demonstrate how these constraints matter for economic outcomes for women. Without the same access to property or the same legal capacity to enter contracts, women do not have the ability — or incentive — to access finance or start and grow their businesses. While Sub-Saharan Africa has the highest rate of women who are self-employed, women's ability to make the leap into becoming an employer is limited. And the share of women employers is lower precisely in those countries where they face greater legal gaps in their economic rights. The challenge is not simply one that will subside with development. The incidence of gaps in these legal rights is as prevalent in middle-income countries as low-income countries. The agenda is one that will take active engagement. In fact, we are now tracking legal changes across 100 countries over the past 50 years, together with the World Bank's Women, Business and the Law project. The hope is to better understand why and how reform happened and how we can support legal changes in countries. This work has already fed into ongoing operational work in the Democratic Republic of Congo, Yemen, and Tunisia. Practical Steps for Women to Take Reforming discriminatory laws on the books is the task for legislators — and in some cases the courts, as they strike down laws as violating constitutional principles of equality or the terms of ratified international conventions (such as the Convention of the Elimination of All Form of Discrimination Against Women). But there are also clear practical steps you can take, such as those listed below. Most restrictions are associated with marriage, so making informed choices regarding your marriage are key.
1. Where there are good laws on the books, formalize your marriage by registering it so you can take advantage of these laws.
The time to act is now if we want to make sure that women like Madame Ngetsi, and all her children and grandchildren, are allowed to contribute to the economic growth of their country unconditionally. In fact, this is what we argued at a recent World Bank workshop (Big Ideas: Changing How We Think About Africa) to win the Biggest Idea Award. All the women we have met working and living in the region are dynamic and hard-working, and they deserve a legal system that recognizes their energy and innovation. We need to move to make this idea a reality. An edited version of this was originally posted on Let's Talk Development on April 10, 2013.
2. Choose a good marital regime, if available, that gives you equal rights over household property.
3. Register your business in your name.
4. Register land in your name or at the very least jointly with your spouse.
5. Write a will and encourage your spouse to write a will to avoid discriminatory laws that apply in the absence of a will.
John Van Reenen is a Professor of Economics and Director Centre for Economic Performance at the London School of Economics
Building hospital gurneys at the Tautmann factory in Turkey Photo: Simone D. McCourtie / World Bank
As policy makers in developed and developing countries alike search for ways to boost productivity, create more and better jobs, increase wages, and lower poverty, they are increasingly focusing on stimulating innovation and entrepreneurship. How can this be done? We asked an expert on this topic – John Van Reenen, Director of the Centre for Economic Performance and Professor of Economics, London School of Economics. In Part II of a two-part series, he emphasizes the need for countries to not only find their comparative advantage but ensure that it is in an area where demand is likely to grow. He also explores how countries can learn from one another and how firms or farms within a country can learn from each other – for example, on good management practices. <iframe src="https://cdns.snacktools.net/tubesnack/embed_https.html?hash=tztnfhzg&wmode=window&bgcolor=FFFFFF&t=1392068270" width="500" height="535" seamless="seamless" scrolling="no" frameborder="0" allowtransparency="true"></iframe>
John Van Reenen is a Professor of Economics and Director Centre for Economic Performance at the London School of Economics
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Building hospital gurneys at the Tautmann factory in Turkey Photo: Simone D. McCourtie / World Bank
As policy makers in developed and developing countries alike search for ways to boost productivity, create more and better jobs, increase wages, and lower poverty, they are increasingly focusing on stimulating innovation and entrepreneurship. How can this be done? We asked an expert on this topic – John Van Reenen, Director of the Centre for Economic Performance and Professor of Economics, London School of Economics. In Part I of a two-part series, he stresses the need for creating the right environment for small and medium size enterprises to grow and flourish – such as sound institutions, healthy competition, good access to finance, flexible labor markets, and foreign direct investment.
Mary Hallward-Driemeier, Lead Economist, Office of the Chief Economist, World Bank Whereas much attention has been paid to small and medium enterprises in recent years, many new papers are now looking more closely at larger firm growth – and the productivity, wage, and employment benefits that can result. Indeed, this was one of the many topics at the recent LACEA-LAMES conference in Peru (Nov 1-3) and the IZA-World Bank Employment and Development Conference in India (Nov. 5-6), which brought together two of the largest gatherings of research economists working on development. The JKP was active in both conferences and will blog about some of the findings presented at these events (including interviews with some of the speakers). Today's blog highlights five working papers – all still works in progress - that look at questions of firm size and job creation. The papers argue from different perspectives that ignoring distortions that can keep firms from becoming large is costly. If the aim is to raise productivity and expand overall employment, the contribution of larger firms is critical.
Worker in factory, 2008. India. Photo: © Ray Witlin / World Bank
Bigger firms may offer bigger economic benefits We know that removing frictions to larger firm growth, particularly of productive ones, can significantly boost overall productivity and employment. After all, in most middle- and high-income countries, the majority of formal employment is in large firms. In addition, larger firms, on average, pay higher wages than smaller firms. This might be because larger firms may hire more skilled workers, use more sophisticated technology that raises productivity, or allow employees to gain more skills by working with a more diverse set of colleagues. How big is the employer size wage effect? Using matched employer-employee data for Brazil, Alessandro Casalecchi and Naercio Menezes-Filho examined the issue in Brazil. Unlike earlier studies they have an 8-year panel, enabling them to follow workers across multiple jobs. Not surprisingly, controlling for the three types of fixed effects (characteristics of the firms, workers, and the matching between them) soaks up most of the variation – but not all. Whereas in the raw data firms with 1,000 employees paid 65 percent more than firms with 5 or less employees, controlling for the fixed effects reduces the unexplained wage premium to 19 percent. If larger firms provide more and higher paying jobs, enabling firms to grow is all the more important. So which firms should we focus on? A paper by Hugo Hopehayn argues that the distortions that are likely to be disproportionately costly in terms of productivity and employment are those that keep more productive firms from growing. Rather than focus on distortions that simply move the entire size distribution down, he argues, focus on ones that skew the distribution such that firms with the greatest productivity potential are held back and are smaller than firms with lower productivity potential. Born large or born to grow The question of whether distortions affect the distribution of firms can also be looked at in terms of the growth dynamics of firms – and how they may vary for small and large firms. In my own work, I look at how large firms become large over time, whether they can start small and grow or do they need to begin as large firms. With more than 50 percent of all manufacturing workers in Chile employed in firms with 150 employees and more than 70 percent in Morocco, the dynamics of these large firms is a critical source of overall job creation. In both countries, the data show that for 10-year-old firms, 85 percent of them started as "large" – whether this is defined as more than 500 employees or even a lower cut-off of 150 or more employees. There is certainly more fluidity in size transitions lower down in the size distribution, but at the upper end, there does not appear to be nearly as much movement. That large firms can be born large could be understood as a lack of distortions, with firms able to access the needed capital and set up near their optimal scale. However, that relatively few firms expand significantly enough to join the group of large firms provides some concern about the reallocation process and the ability of more productive firms to grow. On-going work is examining how these processes of entry and firm growth by size vary with the degree of competition and between pre- and post- reform periods. Enabling "high end entrepreneurs" From the side of the entrepreneur, what helps predict who will be a "high end entrepreneur" - that is, those with greater potential to start a larger and more productive enterprise? Markus Poschke provides a theoretical model for choosing whether to be a worker or an entrepreneur (taking into account occupational choice, differences in workers' abilities, and an ex ante unknown productivity of start-up firms). He examines how institutions (particularly labor regulations, restrictions on entry, and taxes) not only affect the likely upside return to being an entrepreneur but also the relative costs of failure and thus the willingness to start a firm. His work helps explain why there can be relatively unproductive self-employed entrepreneurs earning less than wage workers, as well the trade-offs facing highly skilled potential entrepreneurs that affect the likelihood of larger enterprises being started. Proposed additional work includes calibrating the model to test how well it can predict the size distribution of firms in different countries. Julian Messina, Caglar Ozden, and Miguel Salcedo are also interested in understanding the potential for "high end entrepreneurs" empirically. They seek to tease out the differences between entrepreneurial characteristics and the business environment by comparing the size and productivity distributions of new firms in various Latin American countries with the firms begun by immigrants from these countries in the United States. The selection of who the migrants are is an issue the authors are working to address; patterns in age and education do vary both within and across countries of origin. What is striking is a repeated pattern of productivity where there are two peaks in the distribution: most firms are relatively low productivity, but there is a second, albeit smaller set of higher productivity firms that are established in most of the countries. Shedding light on how to expand the scope for these higher productivity enterprises could help policy makers in Latin America who are keen to (re)vitalize entrepreneurship in their own countries.