Generating Employment in Poor and Fragile States: Evidence from Labor Market and Entrepreneurship Programs

Abstract

The world's poor -- and programs to raise their incomes -- are increasingly concentrated in fragile states. We review the evidence on what interventions work, and whether stimulating employment promotes social stability. Skills training and microfinance have shown little impact on poverty or stability, especially relative to program cost. In contrast, injections of capital -- cash, capital goods, or livestock -- seem to stimulate self-employment and raise long term earning potential, often when partnered with low-cost complementary interventions. Such capital-centric programs, alongside cash-for-work, may be the most effective tools for putting people to work and boosting incomes in poor and fragile states. We argue that policymakers should shift the balance of programs in this direction. If targeted to the highest risk men, we should expect such programs to reduce crime and other materially-motivated violence modestly. Policymakers, however, should not expect dramatic effects of employment on crime and violence, in part because some forms of violence do not respond to incomes or employment. Finally, this review finds that more investigation is needed in several areas. First, are skills training and other interventions cost-effective complements to capital injections? Second, what non-employment strategies reduce crime and violence among the highest risk men, and are they complementary to employment programs? Third, policymakers can reduce the high failure rate of employment programs by using small-scale pilots before launching large programs; investing in labor market panel data; and investing in multi-country studies to test and fine tune the most promising interventions.