Personal initiative training continues to yield positive benefits after 7 years, but impacts vary with gender

Back in 2014 I worked with several World Bank colleagues and two psychologists (Michael Frese and Mona Mensmann) to test a new form of business training for microentrepreneurs. In contrast to traditional business training programs that focus on teaching business practices like accounting, budgeting, and marketing, personal initiative training instead focuses on developing behaviors associated with a pro-active entrepreneurial mindset. This involves exercises such as going through the days activities and thinking about what could have been done at each step to avoid tomorrow looking exactly the same, as well as looking for opportunities to foster innovation, learn from setbacks, and financially bootstrap. This psychology-based approach was very successful, resulting in a 30% increase in profits over 2 years for entrepreneurs in Togo, three times that of the IFC’s Business Edge traditional business training program, and impacts on profits were similar for both men and women. I summarized these 2-year impacts in a previous blogpost, and these findings have spurred projects to implement personal initiative training in over a dozen countries.

The rest of the story: what happens longer-term?

Typically, this is where the story would end. The operational project is closed, the research published, and policy decisions have been made based on it. NPR’s Planet Money has a delightful annual segment called the rest of the story, where they revisit some of their stories and see what else has happened since they aired. Aside from ideal curiosity, tracking impacts longer-term matters a lot for cost-effectiveness estimates of our programs, as well as for telling us about the growth process of entrepreneurs. We therefore decided to track our participants down 7 to 7.5 years after business training, and see whether these impacts persist. In a recent working paper with Francisco Campos,  Michael Frese, Leonardo Iacovone, Hillary Johnson and Mona Mensmann, we report the findings. There is also a short Notebook LM podcast available for those interested.

The sample: We have a sample of 1500 entrepreneurs (789 women, 711 men), who were randomized into three equal-sized groups: a control group, a personal initiative training group, and a traditional training group. At baseline the entrepreneurs were around 40 on average, and were running established firms, typically with a couple of employees. The women were largely in commerce, while the men were spread across a range of manufacturing, construction, and repair services. Baseline monthly profits averaged US$246 for men, and US$173 for women. So these were above-subsistence businesses, with established entrepreneurs looking for growth.

We conducted a phone and in-person follow-up survey in 2021. Combining these two surveys resulted in interviews of 1250 entrepreneurs (83%), while we could ascertain operating status (including closures) for a further 91, so that we know business operating status for 89% of firms. Attrition is 7-8 percentage points higher for the control group than treatment groups, and using our baseline and four rounds of short-term follow-ups, appears concentrated on lower than average profit firms, and especially those that had already closed after 2 years. Any bias from attrition should therefore make our results lower bounds.

Long-term results: our main impacts on firm profits are shown in Figure 1 below.

·         The treatment impact on profits for men increases over time:  the 2-year impact of personal initiative training for men was US$65 per month. This increases to US$148 per month (in constant USD) after 7-years. We see in the figure that profits for the treated group continued to rise, even while the control group was falling (in part because of closures, as well as a weaker economy). We also see that traditional training continues to have much smaller impacts than personal initiative over the longer-term.

·         In contrast, the 7-year impacts are much weaker for women: the 2-year impact of personal initiative training was US$61 for women, almost identical to that for men (and higher in relative terms given lower base profits). The 7-year impact falls to US$39 per month, only about one-quarter of the impact for men (we can statistically reject equality). Note we cannot reject that these long-term impacts for women are the same as the 2-year impacts, but nor can we reject that they are zero.

·         This divergence in impacts by gender occurs over the entire distribution: the bottom panel of Figure 1 shows that not only did men and women have similar average impacts over 2-years, but the impacts were very similar across all quantiles. In contrast, over 7-years we see the top half of the distribution for men really pulling away from that of women.

Note that the cost of the training was $750. Men and women both earned approximately twice this in average profits over the first 2-years, so even if there were no long-term impact, the program would more than pay for itself. But the very large long-term impacts for men make this have a particularly high return for them.

Figure 1: No gender difference after 2-years, and men benefitting a lot more than women after 7-years

Why do we see these gender differences emerging?

We also find that male-owned businesses have built up considerably more additional capital stock after 7-years than women (a treatment effect of $3,627 vs $1,166), and that there is a long-term treatment effect for men on entrepreneurial self-efficacy. This suggests a self-reinforcing cycle, where men who are successful feel more confident in their business, exert more effort, and see more success.

We consider several different explanations for this gender difference arising over time. Our data allows us to rule out some, but say less on others. A first possibility is that the differences arises due to women diverting resources to other family-businesses, such as businesses run by their husbands. But we see these gender gaps are still there even when we consider women with no other household members running businesses. A second hypothesis was that the COVID-19 pandemic had hit the sectors women operate in more than men. But recall data suggest that, if anything, the male businesses were more affected in the worst months. A third explanation is that women can spend less time growing their business because of responsibilities caring for children and the elderly. But we see no heterogeneity by household demographic composition.

A plausible explanation that we can not completely rule out is that the gender gap arises because of differences in the types of businesses run by men and women. Women tend to run much less capital-intensive businesses, and are crowded in a relatively small number of occupations, mostly in commerce. Hardy and Kagy (2020) suggest that as a result, the main constraint on many female-owned businesses growing is a lack of demand, rather than input constraints. We do explore heterogeneity by firm size and sector, but have very little overlap in sector between men and women – so we cannot rule out that differences stem from women being in subsectors with low efficient scale and limited demand – so that they could grow a bit initially, but then quickly reached their efficient scale while men continued to be able to grow.

This long-term gender difference was unexpected, especially after the equality in impacts after 2-years, and one of the trade-offs we made in trying to persuade entrepreneurs to answer a long-term follow-up was to make the survey instrument relatively short, and focus on what happened to the business. We do look at other labor activities, and find that impacts look similar if we add together business profits and labor earnings, so these impacts do not reflect differences in outside labor market opportunities. However, we do not have a household expenditure module or other questions on how the owners used additional business earnings for household needs, which might also vary with gender.

Summary: these long-term results provide even more support to the economic returns of providing personal initiative training, and of figuring out ways to scale such programs up to reach many more entrepreneurs whilst retaining training quality. But they also suggest the need to explore other or complimentary interventions for women entrepreneurs, such as helping them to build more demand for their products through changing sectors or product innovation and marketing. The long-term results also illustrate the value of going back to see what happened, even after a paper has been published and project closed.