Does Poverty Change Labor Supply? Evidence from Multiple Income Effects and 115,579 Bags

Abhijit Banerjee, Dean Karlan, Hannah Trachtman and Christopher Udry

No 27314, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The income elasticity of labor supply is a central parameter of many economic models. We test the response of labor supply and effort to exogenous changes in income using data from a randomized evaluation of a multi-faceted grant program in northern Ghana combined with a researcher-implemented bagmaking operation. We find a non-negative "income effect" on labor supply. We argue that simple models with either labor or capital market frictions cannot explain the results, whereas a model that allows for positive physiological or psychological productivity effects from higher income fits with our findings.

JEL-codes: H31 J22 O12 (search for similar items in EconPapers)
Date: 2020-06
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