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microenterprise

We gave Sri Lankan microenterprises wage subsidies to hire workers: 8 years after starting, here’s what happened

David McKenzie's picture

In my very first experiment, Suresh de Mel, Chris Woodruff, and I gave small grants of capital to microenterprises in Sri Lanka. We found that these one-time grants had lasting impacts on firm profitability for male owners. However, despite these increases in firm profits, few owners made the leap from self-employed to hiring others.
In 2008 we therefore started a new experiment with a different group of Sri Lankan microenterprises, trying to see if we could help them make this transition to becoming employers. Eight years later, I’m delighted to finally have a working paper out with the results.

Using Engel Curves to Detect Underreporting of Income among the Self-employed

David McKenzie's picture
The self-employed often underreport income to tax authorities. Less is known about how trustworthy the income reported on household surveys is, but there is a concern that they may also underreport their income in surveys too – either because of concerns about it getting linked to official records, or because the easiest number for them to report is the one they tell the authorities. This raises obvious concerns about the measurement of items such as the poverty levels of the unemployed, the differential income gap between wage work and self-employment, and many other such uses.

Long-term effects of a short-term boost to savings – are mental accounts the key to why more small businesses don’t take advantage of high returns?

David McKenzie's picture
Standard economic theory would suggest that a one-time infusion of cash should have at most a temporary effect on business profitability – over time, individuals facing high returns should be able to re-invest business profits and bit-by-bit bootstrap themselves up to the steady-state size. Yet in an experiment I did with Suresh de Mel and Chris Woodruff in Sri Lanka, we find a one-time grant has sustained impacts five years later on male microenterprise owners.