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  5. Labor Markets in Low-Income Countries
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Labor Markets in Low-Income Countries

Paper Session

Sunday, Jan. 8, 2023 8:00 AM - 10:00 AM (CST)

Hilton Riverside, Norwich
Hosted By: Econometric Society
  • Chair: Melanie Morten, Stanford University

The Social Tax: Redistributive Pressure and Labor Supply

Eliana Carranza
,
World Bank
Aletheia Donald
,
World Bank
Florian Grosset
,
Columbia University
Supreet Kaur
,
University of California-Berkeley and NBER

Abstract

In low-income communities in both poor and rich countries, redistributive transfers within kin and social networks are frequent. Such arrangements may distort labor supply---acting as a "social tax" that dampens the incentive to work. We test this hypothesis among piece-rate factory workers in Côte d’Ivoire. We enable workers to deposit earnings into blocked savings accounts over 3-9 months. We randomly vary whether the account's existence is private or known to the worker's network---altering the likelihood of transfer requests against saved income. We design the accounts so that workers may only deposit earnings increases, relative to baseline levels, mitigating the scope for income effects and enabling us to isolate substitution effects on labor supply. Relative to non-private accounts, the demand for private accounts is substantively higher (14% vs. 60%). The private accounts sharply increase labor supply, leading to 9.2% higher work attendance and 14.5% higher output and earnings. Because our design leaves liquid cash-on-hand unchanged, outgoing transfers do not decline, indicating no loss in redistribution. Our estimates imply an 18% social tax rate on earned income. These findings suggest that the potential welfare benefits of informal redistribution may come at an efficiency cost, depressing labor supply and productivity.

Urban Public Works in Spatial Equilibrium: Experimental Evidence from Ethiopia

Simon David Franklin
,
Queen Mary University of London
Clement Imbert
,
University of Warwick
Girum Abebe
,
World Bank
Carolina Mejia-Mantilla
,
World Bank

Abstract

This paper evaluates a large urban public works program randomly rolled out across neighborhoods of Addis Ababa, Ethiopia. We find that the program increased public employment and reduced private labor supply among beneficiaries and improved local amenities in treated locations. We then combine a spatial equilibrium model and unique commuting data to estimate the spillover effects of the program on wages across neighborhoods: under full program roll-out, wages increased by 18.7%. Using our model, we show that welfare gains to the poor are six times larger when we include the indirect effects on private wages and local amenities.

Unpacking Neighborhood Effects: Experimental Evidence from a Large Scale Housing Program in Brazil

Gabriel Ulyssea
,
University College London

Abstract

A large literature argues that the neighborhood of residence plays a key role in determining individuals’ labor market out- comes. This paper explores a large-scale, randomized housing program in Brazil to estimate the magnitude of neighborhood effects on individual labor market outcomes. We combine the double-randomization into the housing program and across different neighborhoods, with a partial identification approach, to unpack the overall effect into neighborhoods’ labor market access, quality of peers, and amenities. We find that neighborhood effects are quite heterogeneous, ranging from no impact at all to a 7.5 percentage decrease on formal employment. We show that the neighborhood’s distance to job opportunities is responsible for 82% to 93% of the negative impact on formal employment, while network quality plays only a very limited role in explaining the labor market effects.

Structural Transformation, Production Shocks, and Labor Allocation

Arjunan Subramanian
,
University of Glasgow

Abstract

How do productivity shocks affect the sectoral allocation of labour? We induce a production shock with a unique technology-aided agricultural program in Indian farms to study the above question. Our results show that the agricultural program increase farm productivity and crop incomes for the program recipients. We also observe an increase in off-farm incomes, but the nonfarm revenues shrink. The increase in agricultural productivity while driving up the real wages absorb more labour attenuating labour allocation to the non-agricultural sector.
JEL Classifications
  • O1 - Economic Development
  • J1 - Demographic Economics