Generating Skilled Self-Employment in Uganda
In many developing countries, high unemployment, particularly among youth, is a pressing concern. One way to encourage youth employment may be to provide cash that recipients can invest in the training and assets to learn a trade or form a business. Researchers used a randomized evaluation to measure the impact of providing cash transfers to youth in Uganda on employment and incomes. Results demonstrated that the cash significantly increased recipients’ income, even four years later.
In many developing countries, high unemployment, particularly among youth, is a pressing concern. Jobs, particularly higher-skilled labor and productive small enterprises, provide incomes and reduce poverty. For governments, transitioning from an economy based on small-scale agriculture to one based on entrepreneurship and production can be critical for long-term growth. Employment could also help build social stability and political engagement in communities uprooted by long-term conflict.
One way to encourage youth employment may be to provide cash that recipients can invest in the training and assets to learn a trade or form a business. However, there is little evidence about the effectiveness of this approach. Will youth with little or no financial or business training be able to direct the money towards successful long-term entrepreneurship? To address this issue, researchers evaluated Uganda’s largest employment program to test if an intervention as simple as giving cash could help accomplish the country’s long-term economic and social goals for its youth.
Twenty years of insurgency, instability and conflict led to high rates of poverty and unemployment in northern Uganda. But by 2005, a measure of peace and stability had returned to the region. The centerpiece of the country’s post-conflict recovery plan was a decentralized development program, the Northern Uganda Social Action Fund (NUSAF). In 2006, to stimulate employment growth through self-employment, the government launched a new NUSAF component: the Youth Opportunities Program (YOP), which provided cash transfers to groups of young adults with the goal of encouraging trade-based self-employment.
Researchers used a randomized evaluation to measure the impact of the Youth Opportunities Program (YOP) on young adults’ employment, community reconciliation, and the incidence of conflict. The program invited young adults, aged 16 to 35, to organize into groups and submit a proposal for a cash transfer to pay for: (i) fees at a local technical or vocational training institute of their choosing, and (ii) tools and materials for practicing a craft.
Due to vast oversubscription, among 535 eligible groups that applied, 265 were randomly selected by lottery to receive the cash transfer. The other groups did not receive a transfer and formed the comparison group. The average applicant group had 22 members. Group cash transfers averaged nearly UGX 12.8 million (US$7,108), and varied by both group size and group request. The average transfer size per member was UGX 673,026 (US$374) – more than twenty times the average monthly income of the youth at the time of the baseline survey in 2008. Once the transfer was awarded, the government did not monitor the use of the money.
To measure impacts on employment, outcome, and community cohesion, researchers surveyed participants two and four years after the program.
Overall, the program had strong economic effects. Four years later, participants in the YOP program had 41% higher income and were 65% more likely to practice a skilled trade, such as carpentry, metalworking, tailoring, or hairstyling, relative to those in the comparison group. They also worked 17% more hours, nearly entirely accounted for by these new professions; while most still farmed part-time, hours worked in agriculture were not different. The treatment group was also 40% more likely to keep records, register a business, and pay taxes.
Gains were highest for those who had the highest initial credit constraints, with fewer initial assets and less access to loans. The effects were particularly strong for women. Women who received the cash grants four years later had 84% higher incomes than women who did not, while men were earning 31% more than their counterparts in the comparison group. This gender difference may reflect particular constraints faced by women.
While employment programs including this one are often implemented by governments with the aim of reducing social instability or promoting cohesion, the program showed no evidence for impacts in these domains. After four years there were no measurable differences in cohesion, aggression, or community and political participation between participants in the YOP program and those in the comparison group.
Overall, the results suggest that program recipients used the money effectively, investing in training and tools needed to start businesses, and experienced a significant growth in income, even after four years. Even though other impacts on social cohesion were negligible, these economic outcomes show the potential of alleviating capital constraints for spurring economic growth among the poor.
Blattman, Christopher, Nathan Fiala, and Sebastian Martinez. 2014. "Generating Skilled Self-Employment in Developing Countries: Experimental Evidence from Uganda." The Quarterly Journal of Economics 129(2): 697-752.