Staff Picks
BRIEFS
With this brief we have tried to document the most important elements of our research design so that people reading Small Firm Diaries reports, findings, and recommendations will have a clear view into how the study was conceived, how the sample population was selected, and how the data was collected and cleaned. In doing so we have shared some— though certainly not all—of the key decisions and challenges we faced along the way.
PAPERS
Low incomes are often unsteady within the year. By design, however, poverty headcounts in national statistics downplay the challenges of instability. We introduce the timecount, a measure that explicitly captures the shifting durations and intensities of poverty within the year. We show that, due to survey methodologies, timecounts have unintentionally become the de facto poverty rates in India and other countries, effectively replacing headcounts. In monthly longitudinal data from rural India, the timecount is 28% larger than the conventional headcount, captures deprivations of a wider population, and better predicts child health. We describe consequences for analysis, global policy, and ethics.
How we think about development hinges in large part on how we think about poverty. The world community has embraced the goal to end global extreme poverty as a cornerstone of development policy, but we show how success will hinge on how “poverty” is understood. We argue that global poverty will not be eliminated even if the global headcount of poverty is brought to zero. This is because much poverty is experienced within the year by people who are not typically designated as “poor”. Their deprivations may be substantial, but they systematically go uncounted through the process of annualizing data. We consider poverty as experienced during the year and describe the steps needed to truly achieve the goal of ending poverty.
BOOKS & CHAPTERS
As America imagines a 21st-century safety net—and the roles of governments, businesses and communities—some of the solutions will involve just giving money. The right amount of money at the right time can make a big difference for people, especially for working families without much financial slack. That requires beginning with the idea that in fact it’s not just about money. How and when matter too.
High-frequency data show that the material condition of poverty is only partly captured by overall insufficiency of resources. Instead, life in poverty is often characterized by the interaction of insufficiency × instability × illiquidity, visible when measuring poverty in shorter time units than the year. In this context, reducing instability and/or illiquidity can reduce exposure to poverty even when average earning power (overall insufficiency) is unchanged. The high-frequency view shows the power of intra-year consumption smoothing, while also showing that consumption smoothing often requires the spiking of spending. The instability revealed by the high-frequency view creates a tension between flexibility and structure in the design of behavioral financial products. In practice, microfinance borrowing and saving are often used to address the ups and downs of household spending needs rather than business needs. High-frequency instability also explains why ex post moral hazard (“strategic default”) is a particular problem for lenders (rather than the textbook ex ante moral hazard depiction) and, in turn, why joint liability is difficult to sustain. The installment structure of typical microfinance loan contracts (i.e., high-frequency repayments) is similar to the structure of consumer lending products and contractual saving products, explaining how microfinance loans work naturally for purposes other than business investment, even when that departs from lenders’ nominal intentions. The high-frequency view helps to show why microfinance loans remain popular as financial tools despite modest measured impacts on average household income.
MOST RECENT
Low incomes are often unsteady within the year. By design, however, poverty headcounts in national statistics downplay the challenges of instability. We introduce the timecount, a measure that explicitly captures the shifting durations and intensities of poverty within the year. We show that, due to survey methodologies, timecounts have unintentionally become the de facto poverty rates in India and other countries, effectively replacing headcounts. In monthly longitudinal data from rural India, the timecount is 28% larger than the conventional headcount, captures deprivations of a wider population, and better predicts child health. We describe consequences for analysis, global policy, and ethics.
How we think about development hinges in large part on how we think about poverty. The world community has embraced the goal to end global extreme poverty as a cornerstone of development policy, but we show how success will hinge on how “poverty” is understood. We argue that global poverty will not be eliminated even if the global headcount of poverty is brought to zero. This is because much poverty is experienced within the year by people who are not typically designated as “poor”. Their deprivations may be substantial, but they systematically go uncounted through the process of annualizing data. We consider poverty as experienced during the year and describe the steps needed to truly achieve the goal of ending poverty.
Upward mobility for poor, rural workers often involves migrating to cities, but sending money home can be costly and unreliable. Through an RCT, we introduced mobile banking to migrant-household pairs from rural Bangladesh. One year later, use of the digital financial technology had increased urban-to-rural remittances, decreased rural poverty, and improved conditions in the lean season. Eight years later, treated households had acquired 33 percent more productive assets by value. The treatment and control groups were using mobile money to comparable extents by then, and treatment effects on rural household consumption, income, poverty, and financial outcomes were no longer detectable.
Small firms frequently need to respond to instability and volatility, despite having little financial cushion to draw upon. This makes managing the business more complicated, more mentally taxing, and riskier, and has consequences across several major areas of a business’ operations. The uncertainty and irregularity of cash flows make firm owners wary of taking on additional commitments that require making major payments on fixed dates or in steady increments. Similarly, owners may try to pay workers as flexibly as possible (only paying them when work is completed, for example) and letting workers go.
Randomly chosen low-income households in Compton, CA received unconditional cash transfers averaging roughly $500 monthly. Half received transfers twice monthly, half quarterly. Eighteen months later, twice-monthly transfers improved food security relative to quarterly transfers, but had no other differential effects on pre-specified main outcomes. Averaging across frequencies, monthly income (excluding transfers) was lower than controls by $333, and expenditures (excluding major durables) by $302, without changes in other primary outcomes, including overall labor supply. In line with this, we find suggestive evidence that households paid down debt and purchased durables. Transfers also affected part-time work, housing security, and violence.
Small firms frequently need to respond to instability and volatility, despite having little financial cushion to draw upon. This makes managing the business more complicated, more mentally taxing, and riskier, and has consequences across several major areas of a business’ operations. The uncertainty and irregularity of cash flows make firm owners wary of taking on additional commitments that require making major payments on fixed dates or in steady increments. Similarly, owners may try to pay workers as flexibly as possible (only paying them when work is completed, for example) and letting workers go.