Archive for March, 2015

Training entrepreneurs: does it work?

March 24, 2015

(c) South Park

Here are some highlights from last Friday’s joint What Works Centre / SERC seminar, which was given by Prof Rob Fairlie from UC Santa Cruz. The talk was part of the Spatial Economics Research Centre’s regular series of seminars, and the first in an occasional series of collaborations where we get the chance to dig into an innovative piece of local growth policy.

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Rob’s talk looked at policies to promote entrepreneurship, and focused on whether training programmes for entrepreneurs can help these new businesses grow their workforce. This taps into some major policy concerns in the UK and elsewhere. Since the Great Recession, US and UK policymakers have been very keen to push entrepreneurial activity as a way to generate economic growth. Existing US evidence suggests that small and young firms account for the majority of new jobs generated; and most of that job creation comes from a very small number of those firms (although we should bear in mind that at least some of these jobs created come at the expense of jobs lost in incumbent businesses).

So are there policy interventions that can a) help move people into entrepreneurship and b) help those new businesses grow?

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One cluster of interventions is accelerator and incubator programmes, in the tech sector and more broadly, which select a small number of participants for intensive training. In the States, entrepreneurship training has also been applied as part of active labour market policy, with programmes that aim to help long term unemployed people set up their own businesses. We covered some of these programmes in our evidence review on business advice. Rob’s talk focused on one of the largest, Project GATE, which was set up as an RCT covering over 4,000 people, of whom over 50% were unemployed at the time. Project participants received a package of training, classes and seminars and 1:1 counselling / advice on setting up and growing a business.

A key question for policymakers is whether new entrepreneur-owned businesses generate additional employment, and where this comes from: an unemployed person who becomes a business owner has generated a job (for themselves), which is a success from a ‘welfare to work’ point of view. However, from a local growth perspective, what we really want to know is whether these firms also hire additional employees.

The conclusions from the evaluation are not hugely encouraging. There are positive but not statistically significant effects of the programme on hiring a new employee, and the training did not have an effect on the number of employees hired.

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What might explain this? The RCT results are average effects, so it is possible that the training might be more effective for firms in specific industries, or for specific types of people (the paper also uses descriptive evidence from the Kauffman Firm Survey which suggests quite a lot of heterogeneity in hiring patterns across different types of entrepreneurs).

Another issue is programme aims: this particular intervention focused on moving participants into business ownership, not growing workforces; many participants reported that the hiring advice they received wasn’t terribly helpful, and the number of hiring firms was low, making inference difficult.

A third issue contamination: is that over 50% of the control group also ended up getting some kind of entrepreneurship training. As one of the seminar participants pointed out, although they spent less time on training and reported lower satisfaction than the treatment group, it’s possible that a sub-section of the control group ended up more motivated – and likely to succeed – than the treatment group.

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So what can policymakers take from all of this? First, amidst all the excitement about incubators and accelerators, be wary about claims that entrepreneurship training is a silver bullet for local growth. Second, try to set up some experiments so we can properly test such programmes in a UK context. Third, be very clear about what your entrepreneurship training programme is designed to achieve, and make sure that the policy design and evaluation strategy are able to pick this up. Finally, make sure that participant and performance data is available to researchers. Initial evaluations of Project GATE suggested it had positive impacts, leading the US Department of Labor to spend large sums on further rollout. After several years chasing down the data, Rob and colleagues found mistakes in the original studies and concluded the actual effects were substantially smaller than claimed.

 

A version of this piece was originally posted on the What Works Centre blog.

 

Estate renewal and neighbourhood regeneration

March 8, 2015

(c) Max Nathan 2012

At the end of January the What Works Centre on Local Economic Growth, where I’m a Deputy Director, released its review of estate renewal programmes. For many of those who’ve worked in regeneration policy, and (like me) want such programmes to succeed, the results were deeply disappointing.

The team found that

1/ Estate renewal programmes do a good job of improving housing, public space and physical amenities.

2/ Estate renewal programmes lead to increases in property and land prices and rents, although not necessarily for nearby properties that do not directly benefit from improvements.

3/ Programmes tend to have a limited impact on the local economy in terms of improving income or employment.

4/ Programmes tend to have a limited impact on the local area in terms of reducing crime, improving health, wellbeing or education.

Worse, we found no evaluations that were able to unpick effects on existing residents, as opposed to people moving into an area. This matters, because it means that – for example – area-level improvements in employment rates might simply be driven be people moving into the area, rather than real improvements in life chances for people already living there.

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A few thoughts on this.

First, as Ruth Lupton points out, we have to be careful to assess such programmes on what they set out to achieve. The main aim of estate renewal is usually to improve the quality of housing supply, the built environment and other local amenities. The review shows programmes are pretty good at achieving these. An important result.

Where such programmes score less well is on broader objectives. New Labour broadened estate renewal into a wider ‘neighbourhood renewal’ agenda – programmes like the New Deal for Communities included economic as well as social goals. The review included a number of independent and officially-commissioned NDC evaluations, and the results on these wider goals are not great. As John Haughton suggests, this is consistent with a larger body of evidence on ‘people’ vs ‘place’ interventions, and where views cut across the political spectrum.

It’s worth thinking a moment about why this might be. Urban economies are complex, and adjustment is hard to predict, sometimes chaotic. There’s clearly space for for neighbourhood regeneration programmes to try and deal with co-ordination problems, provide public goods, and try to mitigate some of the problems facing people in deprived areas.

On the other hand, these programmes are microsolutions for megaproblems: the economic elements of NDC are trying to roll back huge structural trends that two decades of national intervention under Labour more or less failed to shift. I’ve got a chapter coming out in this book, edited by Dave O’Brien and Peter Matthews, which talks more about these ‘regeneration expectations’.

Second, as John also says, it is important to understand in more detail *why* some estate renewal programmes have not delivered on their objectives. John suggests a few reasons: lack of community ownership, a lack of learning culture in the ‘estate renewal industry’, and shifting / conflicting central government priorities (a point also made by Ruth and others).

To dig into this, we need better quality impact evaluations (the What Works team used just 21 out of over 1,000 candidate studies). We also need to look through the complementary literature on programme process, implementation and management. The Centre has now started to do this – across a range of policy areas – and will be reporting back in the coming months.

Third, we need to set our expectations for such policies in the future. As a whole, regeneration programmes involve an implicit contract with communities, as Lee Pugalis and David McGuinness argue, and there remains a strong equity case for such initiatives. However, effective urban and neighbourhood policy is hard to design: neighbourhoods and cities are complex systems, which adjust in messy and uneven fashion. This creates space for policymakers – dealing with market and co-ordination failures – but also implies that impacts are likely to be incremental at best. That means presenting a realistic positive case for regeneration and estate renewal, rather than asserting economic transformations that stand little chance of coming about.

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