NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Incentives, Selection and Productivity in Labor Markets: Evidence from Rural Malawi

Raymond P. Guiteras, B. Kelsey Jack

NBER Working Paper No. 19825
Issued in January 2014
NBER Program(s):DEV, LS

An observed positive relationship between compensation and productivity cannot distinguish between two channels: (1) an incentive effect and (2) worker selection. We use a simplified Becker-DeGroot-Marschak mechanism, which provides random variation in piece rates conditional on revealed reservation rates, to separately identify the two channels in the context of casual labor markets in rural Malawi. A higher piece rate increases output in our setting, but does not attract more productive workers. Among men, the average worker recruited at higher piece rates is actually less productive. Local labor market imperfections appear to undermine the worker sorting observed in well-functioning labor markets.

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Document Object Identifier (DOI): 10.3386/w19825

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