measuring non-cognitive, business- related skills for...

1 | N o n c o g n i t i v e s k i l l s

Measuring non-cognitive, business-related skills for small enterprises

Elisa Gamberoni, Leonardo Iacovone, and Josefina Posadas1

Introduction

Non-cognitive skills can influence social and economic outcomes (Heckman et al., 2006),

and, potentially, entrepreneurship performance. Most measures of non-cognitive skills

applied in economics are taken from the theory of personality psychology and the four

dimensions of self-evaluation: neuroticism, self-esteem, self-efficacy, and locus of control.

These aspects are important to measure since there is a debate on whether

entrepreneurship can be taught or whether individuals are born entrepreneurs. If

personality traits are predictors of entrepreneurial behavior unless these traits are

malleable and can be influenced by policy interventions (Rauch and Frese 2000), the role

for policy interventions is much smaller. The issue is particularly important in the context

of gender analysis since women tend to report lower confidence in their entrepreneurial

skills (GEM 2005). Of these aspects, we focus, in particular, on those associated with

entrepreneurial success2.

The module starts by discussing measures that have already shown to be determinants of

gender gaps in entrepreneurship outcomes or key for success in female-owned businesses.

These are specifically measures related to self-efficacy, locus of control, self-esteem, and

propensity to risk.

1 Elisa Gamberoni and Josefina Posadas are Economists in PREM. Leonardo Iacovone is Senior Economist, Finance and Private

Sector Development. The views, findings, interpretations, and conclusions expressed in this note are entirely those of the author. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. 2 See Rauch and Freese, forthcoming, for a discussion on the need to focus on those traits that directly affect entrepreneurship

rather than broader traits.


Self-efficacy can be understood as the belief that one has the ability to produce an effect

(see Minniti 2009 for a discussion on this issue in the context of entrepreneurship). Self-

efficacy is key for success, as entrepreneurs “must be confident in their capabilities to

perform various (and often unanticipated) tasks in uncertain situations” (Rauch and Freese

forthcoming). Women tend to perceive themselves and the business environment less

favorably (Langowitz and Minniti, 2007), and country-level studies suggest that building

self-efficacy can affect the ability of women to enter self-employment and achieve business

growth (World Bank 2009).

The internal locus of control represents the belief that outcomes depend upon an

individual’s own behavior and actions (see Van Praag et al, 2009). This can help foster the

success of an enterprise because a high internal locus of control implies, for example, that

an individual put “more effort and persistence toward intended outcomes” and thus

towards the success of the enterprise (Rauch and Freese, forthcoming, page 10), and that

they are more likely to “exploit opportunities, and be more effective leaders” (Van Praag et

al, 2009, page 14). While this aspect is less studied in the literature of gender and

entrepreneurship, recent papers seems to suggest that women have a lower internal locus

of control (Bengtsson et al, 2012).

Self-esteem refers to a person’s overall emotional evaluation of his or her own self-worth. It

is a judgment of oneself as well as an attitude toward her-self. Self-esteem is the sum

of self-confidence (an evaluation of personal capacity) and self-respect (a feeling of

personal worth). Many studies focus on self-confidence as a means to achieve better

business outcomes.

The propensity to risk is also generally considered a fundamental characteristic of

entrepreneurship. Women also appear more risk averse than men expect in high-level

professions, but this might disappear in high-ranking professions such as manager (see

Croson and Gneezy, 2009).


There are other personality traits that have been used as predictors of entrepreneurship

success: autonomy and propensity to take risks. Autonomy can be understood as an

individual propensity to decide, to control, and to set her own goal (Rauch and Freese,

forthcoming). Men and women are found to equally value autonomy, defined as the

“independent action of the individual or team bringing forth an idea or vision and carrying

it through to completion” (Lim and Envick, 2011). Autonomy can be measured in absolute

terms—whether a person has an input on certain decisions—or in relative terms (Alkire et

al. 2012). Usually, the participation in decision making relates to the household and the

business. Given the focus of the note we only present examples of inputs in productive

decision (or the business), which are important since many times other household

members are involved in business decisions, even if they are not the owners or responsible

for the business (Valdivia 2011). Decision-making questions can be used to construct

simple binary index and/or more complex measures such as the Ryan and Deci Relative

Autonomy Index (Alkire et al. 2012). One recommendation is to check the validity of the

responses by performing polychoric correlations between the answers to the proposed

questions, as well as factor analysis. The factor analysis helps to discriminate answers

related to different motivations (external, introjected, and ‘identified’) as explained by

Alkire et al. (2012, page 25)

Additional proposed measures follow the work of Lazear (2005), who suggests that

entrepreneurs are “Jack-of-all-trades,” characterized by a broad-based skills set and the

ability to juggle many tasks simultaneously. Measuring this characteristic (Wagner 2006)

can be done by using information on a number of professional fields in which the individual

has been actively working (number of fields of experience) as well as information on

professional and technical education (number of technical or professional degree/courses).

An alternative way to measure this special dimension of human capital is to use a scale

similar to that used by psychologists to measure polycronicity such as done by De Mel et al

(2010). Related, other studies have suggested that important cognitive attributes to be


considered include, in addition to those listed previously, the so-called, big-53 (De Mel et al

2010)4.

While we propose to look at these variables as control variables, interventions can also

affect them. For example, training increasing the ability of women to master activities can

affect self-efficacy (see for example, Rauch and Freese, forthcoming and World Bank, 2007).

As a result, these variables can be considered both as control and outcome variables.

Finally, if the researcher wishes to include all the questions, they should not be grouped

together but spread over the questionnaire. In this manner, the interviewed individual will

not reply in the same manner simply because he/she understands that questions are linked

to each other.

Good Practice questions

1. Self-efficacy

I'm going to read you a number of statements. Please tell me if you agree or disagree with each. - Respond on a scale from 1 [strongly disagree] to 5 [strongly agree]

Having a drive is more important than doing careful research on the business

I am happy to take charge of and see things through

I would easily consider venturing into a new business

If I make up my mind to do something, I don't let anything stop me

Source: Uganda Kassida Enterprise Survey

2. Locus of control


I'm going to read you a number of statements. Please tell me if you agree or disagree with each. - Respond on a scale from 1 [strongly disagree] to 5 [strongly agree] It is difficult to know who my real friends are.

I never try anything that I am not sure of.

A person can get rich by taking risks (scale reversed).

3. Self-confidence

Please rate “How confident are you in your own ability to....” (Answer on a scale from 1 to 5, where 1 = Not at all confident to 5 = Very confident).

Sell a brand new product or service to a first time customer

Recognize when an idea is good enough to support a major extension of your business.

Recognize and hire good employees for expanding your business

Get suppliers to sell you goods at advantageous prices.

Persuade a bank to loan you money for a promising business idea

Estimate accurately the costs of running a new project or venture

Manage an employee who is not a member of your family.

Know how to place the proper financial value on your business if you ever wanted to sell it

Have the skill to design a product or service to meet a new market opportunity.

Resolve a difficult dispute with a customer or supplier located in another town.

Source: Sri Lanka Living Measurement Survey (Round 4)

4. Autonomy

Decision-making Activities If the household does not engage in that particular activity enter code for “Decision not made” and proceed to next activity.

When decisions are made regarding the following aspects, who is it that normally takes the decision? (Options: Me alone, Me together with partner/spouse; partner/spouse alone; other household member alone; me with other household member;

To what extent do you feel you can make your own personal decisions regarding to these aspects if you want(ed) to? (Options: Not at all, small extent, medium extent, to a high extent)


someone outside the household; decision not made)

A Business activity B What inputs to buy for

production?

C When or who take decision about sales and/or client relations?

E Whether or not you can take out a loan

D Your own (singular wage)

F What type of work you will do

Source: Authors based on Peterman et al. 2012 Relative Autonomy Activities If the household does not engage in that particular activity enter code for “Decision not made” and proceed to next activity.

My actions in [domain] are determined by the situation. I don’t really have an option. (Options: Never true; Not very true; Somewhat true; Always true; Decision not made)

My actions in [domain] are partly because I will get in trouble with someone if I act differently. (Options: Never true; Not very true; Somewhat true; Always true; Decision not made)

Regarding [domain] I do what I do so others don’t think poorly of me. (Options: Never true; Not very true; Somewhat true; Always true; Decision not made)

Regarding [domain] I do what I do because I personally think it is the right thing to do. (Options: Never true; Not very true; Somewhat true; Always true; Decision not made)

A Business activity B What inputs to buy for

production?

C When or who take decision about sales and/or client relations?

E Whether or not you can take out a loan

D Your own (singular wage)


F What type of work you will do

Source: Authors based on Peterman et al. (2012). An alternative to this is to use a simple question asking about the different reasons as it was done in the Haiti AGI.

5. Policronicity, Impulsiveness, Risk attitude, and the Big 5

5.1 “Jack of all trades”/Policronycity


I like to juggle several activities at the same time.

I would rather complete an entire project every day than complete parts of several projects (scale reversed).

I believe it is best to complete one task before beginning another (scale reversed).

5.2 Impulsiveness -


I plan tasks carefully (scale reversed).

I make up my mind quickly.

I save regularly (scale reversed).

5.3 Risk attitude:

Are you generally a person who is fully prepared to take risks or do you try to avoid taking risks? Please tick a box on the scale, where the value 0 means: "unwilling to take risks" and the value 10 means: "fully prepared to take risks.". Various risk has to be taken in our normal life. Think about the current economy in the country. What is your risk taking behavior. As an example take traveling to the capital. The value 0 means: “unwilling to take risks" and the value 10 means: "fully prepared to take risks."

0 1 2 3 4 5 6 7 8 9 10

unwilling to take

risks

fully prepared to

take risks


Consider now your risk behavior regarding your health. Someone who takes a lot of risks may smoke, not go and see a doctor when they are sick, keep working when they feel ill, not wash their hands before preparing or eating food, not boil water before drinking etc. Someone who is very reluctant to take risks may go and see a doctor whenever they have a small illness, be very careful in what they eat, wash their hands well before eating, only drink boiled and cooled water etc. Are you generally a person who takes a lot of health risks or do you try to avoid taking health risks? Please tick a box on the scale, where the value 0 means: “unwilling to take risks" and the value 10 means: "fully prepared to take risks."

0 1 2 3 4 5 6 7 8 9 10

Consider now your risk behavior regarding your savings and finances. Someone who takes a lot of risks may not save very much or may not keep a careful account of what they spend. Someone who is very reluctant to take risks may save a lot in case of emergencies and only buy things that the household absolutely needs, etc. Are you generally a person who takes a lot of financial risks or do you try to avoid taking financial risks? Please tick a box on the scale, where the value 0 means: "unwilling to take risks" and the value 10 means: "fully prepared to take risks."

0 1 2 3 4 5 6 7 8 9 10

5.6 Optional - Big 5: Extraversion, Agreeableness, Conscientiousness, Neuroticism,

and Intellect/Imagination

Following there are phrases describing people's behaviors. Please use the rating scale

below to describe how accurately each statement describes you. Describe yourself as you

unwilling to take

health risks

fully prepared to

take health risks

unwilling to take

financial risks

fully prepared to

take financial risks


generally are now, not as you wish to be in the future. Describe yourself as you honestly

see yourself, in relation to other people you know of the same sex as you are, and roughly

your same age. So that you can describe yourself in an honest manner, your responses will

be kept in absolute confidence. Respond on a scale from 1 [Very Inaccurate] to 5 [very

accurate]

Am the life of the party (E)


Sympathize with others' feelings (A)

Get chores done right away (C)

Have frequent mood swings (N)

Have a vivid imagination (I)

Don't talk a lot (E)

Am not interested in other people's problems (A)

Often forget to put things back in their proper place (C)

Am relaxed most of the time (N)

Am not interested in abstract ideas (I)

Talk to a lot of different people at parties (E)

Feel others' emotions (A)

Like order (C)

Get upset easily (N)

Have difficulty understanding abstract ideas (I)

Keep in the background (E)

Am not really interested in others (A)

Make a mess of things (C)

Seldom feel blue (N)

Do not have a good imagination (I)


References Alkire, Sabina, Ruth Meinzen-Dick, Amber Peterman, Agnes Quisumbing, Greg Seymour, and Ana Vaz. 2012. “The Women’s Empowerment in Agriculture Index” OPHI Working Paper Croson Rachel and Uri Gneezy. 2009. "Gender Differences in Preferences," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 448-74, June. Heckman James J., Stixrud Jora and Sergio Urzua. 2006. “The effects of cognitive and noncognitive abilities on labor market outcomes and social behavior”, NBER Working Paper 12006 Golla, Anne Marie et al., 2011."Understanding and Measuring Women's Economic Empowerment", ICRW Publication, Uganda Kassida Enterprise Survey, Virtual Business Incubator (Tanzania) Langowitz, Nana and Maria Minniti. 2007. “The Entrepreneurial propensity of women”, Entrepreneurship Theory and Practice, 31: 341–364 Narayan, Deepa. 2005. Measuring Empowerment. Cross-Disciplinary Perspectives. World Bank, Washington DC Minniti Maria, William D. Bygrave and Autio Erkko. 2005. “Global Entrepreneurship Monitor” London Business School Minniti Maria. 2009. “Gender Issues in Entrepreneurship”, Foundations and Trends in Entrepreneurship: Vol. 5: Nos. 7–8, pp 497–621. Peterman, Amber; Agnes Quisumbing, Ruth Meinzen-Dick, Monica Dardón, Md. Zahidul Hassan, Herbert Kamusiime, and Hazel Malapit, 2012-11-13, "Women’s Empowerment in Agriculture Index (WEAI) Pilot for Uganda", http://hdl.handle.net/1902.1/19237 International Food Policy Research Institute [Distributor] V2 [Version] Rauch Andreas and Michael Freese (forthcoming) “Let’s Put the Person Back into Entrepreneurship Research: A Meta-Analysis on the Relationship between Business Owners ‘Personality Traits, Business Creation, and Success”, European Journal of Work and Organizational Psychology Sonnenberg, Bettina, Riediger, Michaela, Wrzus, Cornelia, and Gert G. Wagner. 2011,“Measuring Time Use in Surveys – How valid are time use questions in surveys? Concordance of survey and experience sampling measures,” SOEP - The German Socio-Economic Panel Study at DIW Berlin


Van Praag Mirjam, Arjen van Witteloostuijn and Justin van der Sluis. 2009. “Returns for Entrepreneurs versus Employees: The Effect of Education and Personal Control on the Relative Performance of Entrepreneurs vis-à-vis Wage Employees”, Tinbergen Institute Discussion Paper 2009-111/3 World Bank. 2009. “Gender in Bolivian Production Reducing Differences in Formality and Productivity of Firms”, World Bank, Washington DC World Bank. 2011. “World Development Report 2012: Gender equality and Development”, World Bank, Washington DC

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