Small Enterprise Emergency Financial Assistance

Over 85% of Ghanaians work in the informal sector. While a majority of these workers are own-account, a sizable share are wage employed in informal firms. Previous research has found that these worker-firm matches are costly to create and that small firm employers routinely shift labor demand to cope with shocks. Does the logic of firm assistance and job retention programs in the formal sector apply to firms and wage employees in the informal sector? Is firm survival sufficient to avoid job destruction or must assistance take the form of implicit or explicit pass-through to workers? In this project, Morgan Hardy and Jamie McCasland use randomised income transfers to firms and workers to test implementation modalities for small firm emergency assistance, measuring effects on firm survival, match retention, wages, and firm owner and worker income smoothing.

The study uses a randomised controlled trial to estimate the relative impacts of three different implementation modalities of small enterprise emergency financial assistance. The researchers will split their sample of roughly 1,025 informal firms and 2,050 informal workers between four equally sized experimental groups, one acting as a control and three allocated about 75% of the wage of each pre-crisis employee to be paid: 1) unconditionally to the firm owner; 2) labeled as for job retention to the firm owner; or 3) unconditionally to the worker. Firms in treatment groups 1 and 2 and workers in treatment group 3 will have the opportunity to request emergency financial assistance claims in any three of the next 12 months. The primary specification will include treatment indicators for each of three treatment groups with the principal outcomes of interest being firm survival, firm size, job retention, wages, firm owner and worker total earnings, and firm owner and worker income variability over time.

Several key features of the project design are well placed to provide rapid policy evidence. A tiny share of workers in sub-Saharan Africa are covered by formal unemployment insurance, and job retention schemes that channel wage insurance through employers are one potential (logistically simpler) alternative. There is little evidence of the feasibility of these types of programmes in the informal sector that employs the majority of wage-employed Africans. This project tests implementation modalities for this type of transmission of benefits in the informal sector. Ghana is one among many in the region that has committed to emergency financial assistance to small firms, so understanding how this unlabeled transfer affects workers is directly applicable to mutliple countries.

Authors

Morgan Hardy

New York University, Abu Dhabi

Jamie McCasland

University of British Columbia