What are they and what do they aim to do?
Public advisory services offer counselling or advice on running a business. The advice is provided directly by publicly funded agencies (as opposed to schemes where the public sector facilitates access to private sector advice). Public advisory services may be offered either to established firms or to individual entrepreneurs before or after they start a business.
How effective are they?
The evidence suggests a generally positive effect of public advisory services on employment. There are also positive effects on firm survival and firm creation. However, the evidence on other measures of firm performance – sales, productivity and profits – is more mixed. The available evidence finds no effect on patents, credit rating or capital at the firm level, or earnings at the individual level.
These findings suggest that public advisory services may be more likely to increase employment than productivity, sales or profits. This is in contrast to the findings of our systematic review of a broader range of business advice programmes which showed somewhat better results for sales than for employment and productivity. It is important to note, however, that our evidence reviews apply higher evidential standards and it may be that the stronger effects for employment simply reflect the self-selection of firms to use public advisory services when they are already looking to grow employment.
How secure is the evidence?
The evidence base on public advisory services is not as weak as for other areas of business support. However, the conclusions on cost-effectiveness are still based on a limited number of studies. More rigorous studies are required. We found no systematic reviews of the effectiveness and no meta-analysis.
We found ten studies that examined the effectiveness of public advisory services as a form of business support. One study is a randomised controlled trial, and the remaining studies are mixtures of before-and-after analysis and cross sectional comparisons of firms who received support with firms who didn’t.
One of the studies comes from the UK. For a full list of studies and summaries of their findings please see the Annex.
Are they cost-effective?
Three of the ten studies report cost information. Two of these examine programmes targeted at firms rather than individual entrepreneurs. For these two schemes, information on programme costs and the estimated employment benefits suggests a cost of £1,067-£3,248 per job created.
The third study examines a programme targeted at individuals. Using a cost benefit analysis that takes into account the cost of the programme, as well as changes in earnings and unemployment benefits, they find the programme has a net cost to society of £938 per participant on average. However, for the subsample of unemployment benefit recipients, who experience larger self-employment effects and sacrifice less wages, there was a benefit of £1,204 per participant. Note, however, that this programme combines elements of both training and public advice, and it is not possible to uniquely attribute costs or benefits to either form of support.
Overall these findings suggest that public advice may be a cost effective way of promoting employment both at the firm level, and at the individual level (if targeting the unemployed). However, while this may be cost-effective from the firm’s point of view, if this additional employment comes at the expense of other local firms, this may not be cost-effective from an area point of view.
Things to consider
- At what stage in the business start-up should support be provided? The effect of support to individual entrepreneurs may depend on whether advice is provided before or after business start-up (with possibly greater benefits when provided before).
- How long should support be provided? There may be diminishing returns to the number of hours spent supporting a particular business which suggests that mechanisms to limit the quantity of advice provided may improve cost-effectiveness.
- What type of firm will benefit most? The costs and benefits of support may differ according to the type of firm (e.g. large firms may benefit more) and the characteristics of the entrepreneur (e.g. unemployed don’t forgo earnings).
- Is additional employment likely to come at the expense of other local firms? If so, this will reduce the net-benefits of the programme. This is more likely to be a problem for firms that tend to serve local markets (see our evidence review on other Area Based Initiatives).