Labor drops: experimental evidence on the return to additional labor in microenterprises

Suresh De Mel, David J. Mckenzie, Christopher M. Woodruff, Suresh De Mel, David J. Mckenzie and Christopher M. Woodruff
Authors registered in the RePEc Author Service: Christopher Woodruff and David Mckenzie

No 7924, Policy Research Working Paper Series from The World Bank

Abstract: 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.

Keywords: Labor Markets; Rural Labor Markets; Educational Sciences; Labor Policies; Employment and Unemployment; Wholesale&Retail Trade Industry (search for similar items in EconPapers)
Date: 2016-12-19
References: Add references at CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Labor Drops: Experimental Evidence on the Return to Additional Labor in Microenterprises (2019)
Working Paper: Labor Drops: Experimental Evidence on the Return to Additional Labor in Microenterprises (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:7924

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