Labor Drops: Experimental Evidence on the Return to Additional Labor in Microenterprises
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.
-
-
Copy CitationSuresh De Mel, David McKenzie, and Christopher Woodruff, "Labor Drops: Experimental Evidence on the Return to Additional Labor in Microenterprises," NBER Working Paper 23005 (2016), https://doi.org/10.3386/w23005.Download Citation
-
Published Versions
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. citation courtesy of 
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
