Publication: Taking Control: How Financial Inclusion Impacts Labor Supply
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2023-07-13
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2023-07-13
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Social and familial financial transfers are common in low-income communities and have positive social effects. To address this challenge, the authors designed and implemented a financial innovation to lower redistributive pressure among female cashew-processing workers: a blocked savings account into which gains in workers’ earnings get transferred. Take-up of the private account was substantially higher at 60 percent, compared to 14 percent for the non-private account. Being offered a private account increased workers’ attendance by 9.7 percent and earnings by 11.4 percent. The estimates imply that workers face a 9-23 percent social tax rate, and that the welfare benefits of informal redistribution may come at the cost of depressing labor supply and productivity.
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“Carranza, Eliana; Donald, Aletheia; Grosset, Florian; Kaur, Supreet. 2023. Taking Control: How Financial Inclusion Impacts Labor Supply. Gender Innovation Lab; June 2023. © World Bank. http://hdl.handle.net/10986/39996 License: CC BY-NC 3.0 IGO.”
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This paper documents that across countries, social groups that undertake more interpersonal transfers work fewer hours. Using a field experiment, the study enabled piece-rate factory workers in Côte d'Ivoire to shield income using blocked savings accounts over 3-9 months. Workers could only deposit earnings increases, relative to baseline, mitigating income effects on labor supply. The study varied whether the offered account was private or known to the worker's network, altering the likelihood of transfer requests against saved income. When accounts were private, take-up was substantively higher (60% vs. 14%). Offering private accounts sharply increased labor supply—raising work attendance by 10% and earnings by 11%. Outgoing transfers did not decline, indicating no loss in redistribution. The estimates imply a 9–14% social tax rate. The welfare benefits of informal redistribution may come at a cost, depressing labor supply and productivity.
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