Publication:
Labor Drops: Experimental Evidence on the Return to Additional Labor in Microenterprises

Loading...
Thumbnail Image
Files in English
English PDF (947.27 KB)
237 downloads
English Text (153.26 KB)
19 downloads
Date
2016-12
ISSN
Published
2016-12
Author(s)
de Mel, Suresh
Woodruff, Christopher
Abstract
The majority of enterprises in many developing countries have no paid workers. This paper reports on a field experiment conducted in Sri Lanka that provided wage subsidies to randomly chosen microenterprises to test whether hiring additional labor would benefit such firms. In the presence of labor market frictions, a short-term subsidy could have a lasting impact on firm employment. Using 12 rounds of surveys to track dynamics four years after the end of the subsidy, the study finds that firms increased employment during the subsidy period, but there was no lasting impact on employment, profitability, or sales. Two supplementary interventions and treatment heterogeneity suggest the lack of impact is not due to complementarities with capital or management skills, and detailed survey data help rule out a number of theoretical mechanisms that could result in sub-optimally low employment. The study concludes that the urban labor market facing microenterprises does not have large frictions that would prevent own-account workers from becoming employers.
Link to Data Set
Citation
de Mel, Suresh; McKenzie, David; Woodruff, Christopher. 2016. Labor Drops: Experimental Evidence on the Return to Additional Labor in Microenterprises. Policy Research Working Paper;No. 7924. © World Bank, Washington, DC. http://hdl.handle.net/10986/25827 License: CC BY 3.0 IGO.
Report Series
Report Series
Other publications in this report series
  • Publication
    Should Farm Input Subsidy Programs Target Poor or Non-Poor Farmers? Evidence from Malawi’s Farm Input Subsidy Program
    (Washington, DC: World Bank, 2024-07-25) Darko, Francis Addeah
    This paper addresses the question of whether farm input subsidy programs should be targeted at non-poor farmers instead of poor farmers, using a two-wave, nationally representative panel data from Malawi. The question is addressed by estimating the net gain in maize yield for targeting non-poor farmers instead of poor farmers after accounting for the difference in inorganic fertilizer use efficiency and the difference in crowding-out of commercial fertilizer by subsidized fertilizer between the poor and non-poor farmers. Consumption expenditure is used to classify households into consumption poor and non-poor households, and an asset-based wealth index is used to classify households into asset poor and non-poor households. The difference in inorganic fertilizer use efficiency is estimated with a multilevel model of maize yield, and the difference in crowding out is estimated with a double hurdle model of demand for commercial, inorganic fertilizer. The results indicate that non-poor farmers are significantly more efficient in the use of inorganic fertilizer but have significantly higher levels of crowding out, compared to poor farmers. This suggests that there is a trade-off between targeting non-poor farmers and targeting poor farmers. However, further analysis of the trade-off indicates that targeting non-poor farmers instead of poor farmers, even after accounting for the difference in crowding out, would result in an overall gain in yield of 3.14 to 4.33 kilograms of maize per kilogram of nitrogen distributed by the subsidy program. Therefore, the productivity enhancing objective of Malawi’s farm input subsidy program would be better served by targeting non-poor farmers instead of poor farmers.
  • Publication
    Does Climbing the Jobs Ladder Promote Poverty Reduction ?
    (Washington, DC: World Bank, 2024-07-24) Choi, Yunji; Gronert, Mario; Honorati, Maddalena; Merfeld,, Joshua D,; Newhouse, David
    This paper explores trends in and the potential determinants of the types of jobs held by workers, and their relationship with poverty reduction, in an unbalanced panel of 89 countries over the past 30 years. Jobs are classified into five categories according to formality, occupation or level of skills required, and wage work versus self-employment. Net shifts into "upper tier" or skilled informal wage jobs, defined as professionals, managers, technicians, or clerks, from "lower tier" or lower skilled informal jobs were strongly associated with poverty reduction at the $1.90 and $3.20 lines. In contrast, net shifts into formal wage jobs from lower tier informal jobs were associated with modest poverty reductions at the $5.50 poverty line. The share of workers in informal upper tier jobs represents less than 2 percent of the workforce and has increased little over the past 30 years in low- and middle-income countries. The findings show that increases in upper tier informal wage jobs are associated with shifts of the workforce from microenterprises to small firms in lower- and upper-middle-income countries, but they are not discernibly associated with higher educational attainment or urbanization. In contrast, increases in the share of formal wage jobs are strongly associated with increases in the share of workers with post-secondary education, driven by high-income countries. The results suggest that upper tier informal wage jobs and the skills they require play a potentially important role in poverty reduction but are not automatically generated by increased educational attainment, urbanization, or firm size.
  • Publication
    Assessing Power System Disruptions and Associated Economic Impacts from Increasing Extreme Heat Events in Southeast Europe Using an Idealized Design Methodology Design Methodology
    (Washington, DC: World Bank, 2024-07-24) Farnham, David; Eisenberg, Ross; Bonnafous, Luc
    As the world endeavors to decarbonize and shift toward sustainable energy sources, power systems will become increasingly dependent on weather conditions. This dependence creates the challenge of managing fluctuations in both power supply and demand (particularly for cooling), which can jeopardize system reliability, particularly during extreme weather events. To what extent will the increases in peak cooling demands manifest more frequent power system disruptions, posing risks to human health and economic activity This paper focuses on urban centers in Southeast Europe and utilizes state-of-the-art climate simulations to estimate changes in the magnitude of extreme heat events. It also estimates the frequency of potential associated power system disruptions and their ensuing impacts on economic activity by assuming an idealized design methodology. The analysis reveals that between 2021 and 2070, urban centers in Southeast Europe may be at risk of an estimated four to nine power system disruptions per decade due to increasing trends in extreme heat events. These disruptions have the potential to incur annual economic costs of up to tens of millions of dollars in some cities. The projected disruptions highlight the challenges of adapting power systems to climate change, even with idealized regular redesign and maintenance efforts. To mitigate power system fragility during heat waves, the paper recommends implementing measures such as securing reserve power capacity, promoting urban cooling through greening initiatives, adopting demand-side management with smart-grid infrastructure, and increasing the deployment of solar power, which typically has high generation potential during heat waves.
  • Publication
    Trade Policies Mix and Match
    (Washington, DC: World Bank, 2024-07-24) Kee, Hiau Looi; Xie, Enze
    This paper studies the relationship between tariffs and non-tariff measures (NTMs) to understand the recent trade tensions with governments mixing trade policies, such as the European Union imposing NTMs on top of the tariffs on China’s electric vehicles. Results based on the latest bilateral-product-level NTMs show that overall tariffs and NTMs are policy substitutes. The substitutions are higher for high-income importing countries, low-income exporting countries, country pairs with deep trade agreements, and products with consumption externalities. A simple terms-of-trade model demonstrates how the welfare-maximizing government may mix trade policies to reduce consumption externalities from imports. Structural estimations confirm the results.
  • Publication
    Profitability of Fertilizer Use in SSA
    (Washington, DC: World Bank, 2024-07-24) Darko, Francis Addeah; Ricker-Gilbert, Jacob; Kilic, Talip
    This paper estimates the profitability of inorganic fertilizer use in maize production in Malawi. It employs a two-wave, nationally representative panel of data on smallholder households and plots to estimate household fixed effects, plot fixed effects, and multilevel regressions. The results suggest that inorganic fertilizer use is generally unprofitable at prevailing market prices when, assuming that farmers incur positive transaction costs in the use of fertilizer. The low fertilizer profitability is driven by low nitrogen use efficiency, the kilograms of maize produced per kilogram of nitrogen, which is estimated to range from 9.2 to 12.1. For fertilizer use to be profitable, the nitrogen use efficiency would have to increase by at least 137 percent (from 11.89) if maize output is valued at the farmgate price and by 50 percent (from 11.89) if maize is valued at the lean season market price. For farmers who receive the fertilizer subsidy, it improves the profitability of fertilizer use by increasing the maize-nitrogen price ratio at all rates of subsidy (0 to 100 percent). However, unless farmers can store their produce and sell during the lean season when the output price is relatively higher, they would be better off by at least MKW 66.16 (US$0.18) per kilogram of subsidized nitrogen with the cash equivalent of the subsidy than with subsidized fertilizer. The analysis also finds that, compared to the current rate of nitrogen application, the government recommended rate of application is between 116 and 119 percent more profitable on smallholder fields.
Journal
Journal Volume
Journal Issue
Associated URLs
Associated content
Citations