Outside Options, Coercion, and Wages: Removing the Sugar Coating

Christian Dippel, Avner Greif and Daniel Trefler

No 20958, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In economies with a large informal sector firms can increase profits by reducing workers’ outside options in that informal sector. We formalize this idea in a simple model of an agricultural economy with plantation owners who lobby the government to enact coercive policies—e.g. the eviction and incarceration of squatting small-hold farmers—that reduce the value to working outside the formal sector. Using unique data for 14 British West Indies ‘sugar islands’ from the year of slave emancipation in 1838 until 1913, we examine the impact of plantation owners’ power on wages and coercion-related incarceration. To gain identification, we utilize exogenous variation in the ease with which smallholders could evade the plantation system in the different islands over time. Where evading the plantation system became exogenously easier, planter power declined, incarceration rates dropped, and agricultural wages rose, accompanied by a decline in formal agricultural employment. Most of the wage increase can be statistically explained by the reduced coercion of smallholders.

JEL-codes: F1 F16 N26 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-gro and nep-his
Note: DAE ITI POL
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Published as Christian Dippel & Avner Greif & Daniel Trefler, 2020. "Outside Options, Coercion, and Wages: Removing the Sugar Coating," The Economic Journal, vol 130(630), pages 1678-1714.

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