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

Suresh De Mel, David McKenzie () and Christopher Woodruff ()

No 23005, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The majority of enterprises in developing countries have no paid workers. Is this optimal, or the result of frictions in labor markets? We conduct an experiment providing wage subsidies to randomly chosen microenterprises in Sri Lanka. In the presence of frictions, a short-term subsidy could have a lasting impact on employment. We find the subsidy induced firms to hire, but there was no lasting impact on employment, profitability, or sales. Analysis rules out several theoretical mechanisms that could result in sub-optimally low employment. We conclude that labor market frictions are not the reason own-account workers do not become employers.

JEL-codes: C93 D22 L26 O12 O17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp and nep-lab
Date: 2016-12
Note: DEV PR
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Published as Suresh de Mel & David McKenzie & Christopher Woodruff, 2019. "Labor Drops: Experimental Evidence on the Return to Additional Labor in Microenterprises," American Economic Journal: Applied Economics, American Economic Association, vol. 11(1), pages 202-235, January.

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Journal Article: Labor Drops: Experimental Evidence on the Return to Additional Labor in Microenterprises (2019) Downloads
Working Paper: Labor drops: experimental evidence on the return to additional labor in microenterprises (2016) Downloads
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