Labor Rationing

Emily Breza, Supreet Kaur and Yogita Shamdasani

American Economic Review, 2021, vol. 111, issue 10, 3184-3224

Abstract: This paper measures excess labor supply in equilibrium. We induce hiring shocks—which employ 24 percent of the labor force in external month-long jobs—in Indian local labor markets. In peak months, wages increase instantaneously and local aggregate employment declines. In lean months, consistent with severe labor rationing, wages and aggregate employment are unchanged, with positive employment spillovers on remaining workers, indicating that over a quarter of labor supply is rationed. At least 24 percent of lean self-employment among casual workers occurs because they cannot find jobs. Consequently, traditional survey approaches mismeasure labor market slack. Rationing has broad implications for labor market analysis.

JEL-codes: E24 J22 J23 J31 J64 O15 R23 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1257/aer.20201385

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