Disproving the Stigma: Studies Show Public Assistance Makes Self-Starters

publicassistanceThere is a stigma associated with public assistance, which implies that those receiving help from the government come to rely on this help, and therefore lose the motivation to better themselves. However, recent studies show that eligibility for public assistance actually has a positive effect on the chances that an individual will start a business.Gareth Olds, a business professor at Harvard University, has conducted three separate studies that have all lead to the same conclusion. He discovered that eligibility for certain public assistance programs increased the likelihood of small business ownership by about 20%.

Olds, 27, researched food stamps programs, child health insurance programs, and some health insurance programs for the children of immigrants, for his dissertation at Brown. His thesis explored whether a “social safety net” made people more willing to start a business.

“And in each of the papers, and for each of these populations, I find the answer is overwhelmingly yes,” Olds said.

Taking the Risk

Government policy changes allowed Olds to measure the impact of public assistance programs on business formation. A reinterpretation of federal rules in 2000 made many more households eligible for food stamps. Olds found that those newly eligible households were 20% more likely to own a business than were households with a slightly higher income that didn’t qualify for the aid.

Increases in incorporated firms were particularly strong, which means that the new businesses tend to be serious enterprises.

Interestingly enough, nearly all of the increase in self-employment came from households that were eligible for food stamps, but didn’t enroll. Olds suggests it’s not necessarily the money that encourages new business formation, but the knowledge that help is available if things don’t work out.

“When they have this insurance mechanism, this safety net, then they’re more likely to take on a risk,” he said.

A Shining Example

Pamela Graham is familiar with the stigma of public assistance.

“I think, unfortunately, for some people it does become a way of life, and they get comfortable with it,” she said.

But that certainly hasn’t been her own personal experience. The head of a household of five, Graham gets food stamps. She also works in Milwaukee Public Schools, teaches jewelry-making, and has studied carpentry.

She also has her own small business, making pillows, home decor items, and fashion accessories, that she sells as the Nandi Collection.

It’s only a small, part-time job, but Graham finds it very rewarding.

“I love to do it, and it’s profitable,” Graham said. “…I’ve sold pillows for $125 — for a single pillow.”

Graham says this business would not be possible without the help she’s received in the form of public assistance.

“My receiving food stamps,” she said, “that makes the major difference.”

Without receiving food stamps, Graham said she’d probably have to take a second job, which would have left her with no time for the Nandi Collection.

Staying Afloat

Fortunately, there are programs out there designed for small business owners just starting out and trying to keep their heads above water.

Graham started her business with the help of a small loan she received from the Wisconsin Women’s Business Initiative Corp, a non-profit that lends money to small businesses and start-ups owned by lower-income people.

Many companies offer merchant cash advance services, which can help a small business get its footing. A cash advance is a lump sum payment in exchange for an agreed-upon percentage of future credit and/or debit card sales.

First-Hand Experience

Olds’s personal experience inspired the direction of his research. Olds believes the Medicaid and food stamps his family received when he was growing up in Anchorage, Alaska enabled his stepfather to start up a business offering training for dental assistants.

“I think it gave my parents a sense that there was something to catch them, to catch us, the kids, if the business went under,” Olds said.

Though the business started on a shoestring, the training program grew to become a successful enterprise.

Pamela Graham is working towards the same success with her business. Currently, she’s working to improve her business, to enable online ordering, and hopes to turn the Nandi Collection into a full-time gig. But she’s still enjoying the work, and encourages others to take the risk of self-employment.

“If you have a business idea, something that you’re good at, something that you love to do…you need to make the time for it and just give it a good shot,” she said.