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

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...

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Main Authors:	de Mel, Suresh, McKenzie, David, Woodruff, Christopher
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2017
Subjects:	microenterprises labor market field experiment wage subsidies labor market friction employment
Online Access:	http://documents.worldbank.org/curated/en/635781482172997729/Labor-drops-experimental-evidence-on-the-return-to-additional-labor-in-microenterprises http://hdl.handle.net/10986/25827

id	okr-10986-25827
recordtype	oai_dc
spelling	okr-10986-258272021-06-08T14:42:46Z Labor Drops : Experimental Evidence on the Return to Additional Labor in Microenterprises de Mel, Suresh McKenzie, David Woodruff, Christopher microenterprises labor market field experiment wage subsidies labor market friction employment 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. 2017-01-10T17:49:29Z 2017-01-10T17:49:29Z 2016-12 Working Paper http://documents.worldbank.org/curated/en/635781482172997729/Labor-drops-experimental-evidence-on-the-return-to-additional-labor-in-microenterprises http://hdl.handle.net/10986/25827 English en_US Policy Research Working Paper;No. 7924 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	microenterprises labor market field experiment wage subsidies labor market friction employment
spellingShingle	microenterprises labor market field experiment wage subsidies labor market friction employment de Mel, Suresh McKenzie, David Woodruff, Christopher Labor Drops : Experimental Evidence on the Return to Additional Labor in Microenterprises
relation	Policy Research Working Paper;No. 7924
description	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.
format	Working Paper
author	de Mel, Suresh McKenzie, David Woodruff, Christopher
author_facet	de Mel, Suresh McKenzie, David Woodruff, Christopher
author_sort	de Mel, Suresh
title	Labor Drops : Experimental Evidence on the Return to Additional Labor in Microenterprises
title_short	Labor Drops : Experimental Evidence on the Return to Additional Labor in Microenterprises
title_full	Labor Drops : Experimental Evidence on the Return to Additional Labor in Microenterprises
title_fullStr	Labor Drops : Experimental Evidence on the Return to Additional Labor in Microenterprises
title_full_unstemmed	Labor Drops : Experimental Evidence on the Return to Additional Labor in Microenterprises
title_sort	labor drops : experimental evidence on the return to additional labor in microenterprises
publisher	World Bank, Washington, DC
publishDate	2017
url	http://documents.worldbank.org/curated/en/635781482172997729/Labor-drops-experimental-evidence-on-the-return-to-additional-labor-in-microenterprises http://hdl.handle.net/10986/25827
_version_	1764460249376358400

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

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