Excerpts Nathan Fiala from a Professor in the Harris School of Public Policy at the University of Chicago.
Countries like Uganda have mostly young, poor, populations. No one is unemployed. If you have no income, you’re in trouble. So you scrape by doing odd jobs and low return activities. The real problems are underemployment (not enough hours) and low productivity employment (low return, low wage work).
So how do you create “good” jobs and productive work? Another way of asking this question is “what is holding young people back?” or “what constrains them?”
Every government or NGO program has an answer to this question, even when they don’t know it. From the vast, vast number of training programs–financial literacy, trade skills, life skills–the default answer seems to be “skills”. If you think these programs are worth doing, presumably it’s because you think (1) youth lack these skills, (2) they can’t otherwise get them, and (3) giving them these skills will produce high returns.
More and more, economists think that the real constraint is capital. Studies show that the poor, on average, have high-earning opportunities if they get a little cash or equipment. Studies with existing farmers or business-people have seen returns of 40 to 80% a year on cash grants.
Enter our study. We look at a large, randomized, relatively unconditional cash transfer program in Uganda, one the government designed to stimulate this kind of job growth and structural change.
The Ugandan government did what dozens of African governments are doing under the guise of “Social Action Funds” and “Community Driven Development”: they sent $10,000 to a group of 20 or so young people who applied for it. This is about $400 a person, equal to their annual incomes.
To many people, this sounds like a crazy development strategy. We don’t trust the poor (let alone a bunch of rural 25-year olds) to spend that kind of money responsibly. We want to tie their hands, or make the decisions for them, or at least make them dig useless ditches for three months in exchange for cash.
The poorest don’t have firms ready to hire them. Perhaps we need to stop projecting our own labor markets and biases and low opinions of our own self-control onto the poor, and show them the money.
Link to Full Report on the Study http://www.poverty-action.org/project/0189
