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

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  • Suresh de Mel
  • David McKenzie
  • Christopher Woodruff

Abstract

A field experiment in Sri Lanka provided wage subsidies to randomly chosen microenterprises to test whether hiring additional labor benefits such firms, and whether a short-term subsidy can have a lasting impact on firm employment. Using 12 rounds of surveys to track dynamics four years after treatment, we find that firms increased employment during the subsidy period. Treated firms were more likely to survive, but there was no lasting impact on employment, and no effect on profitability or sales either during or after the subsidy period. There is some heterogeneity in effects; the subsidies have more durable effect on manufacturers.

Suggested Citation

  • 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.
    • Handle: RePEc:aea:aejapp:v:11:y:2019:i:1:p:202-35
    Note: DOI: 10.1257/app.20170497
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    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. We gave Sri Lankan microenterprises wage subsidies to hire workers: 8 years after starting, here’s what happened
      by David McKenzie in Development Impact on 2017-01-09 20:28:00

    Citations

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    Cited by:

    1. David McKenzie & Anna Luisa Paffhausen, 2019. "Small Firm Death in Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 101(4), pages 645-657, October.
    2. Livia Alfonsi & Oriana Bandiera & Vittorio Bassi & Robin Burgess & Imran Rasul & Munshi Sulaiman & Anna Vitali, 2020. "Tackling Youth Unemployment: Evidence From a Labor Market Experiment in Uganda," Econometrica, Econometric Society, vol. 88(6), pages 2369-2414, November.
    3. Crepon,Bruno Jacques Jean Philippe & Premand,Patrick, 2018. "Creating new positions ? direct and indirect effects of a subsidized apprenticeship program," Policy Research Working Paper Series 8561, The World Bank.
    4. Santiago Caicedo & Miguel Espinosa & Arthur Seibold, 2020. "Unwilling to Train? Firm Responses to the Colombian Apprenticeship Regulation," CESifo Working Paper Series 8598, CESifo.
    5. Armand, Alex & Carneiro, Pedro & Tagliati, Federico & Xia, Yiming, 2020. "Can Subsidized Employment Tackle Long-Term Unemployment? Experimental Evidence from North Macedonia," IZA Discussion Papers 13478, Institute of Labor Economics (IZA).
    6. Kim, Hyejin & Lee, Jungmin, 2019. "Can employment subsidies save jobs? Evidence from a shipbuilding city in South Korea," Labour Economics, Elsevier, vol. 61(C).
    7. Schmidt, Emily & Mueller, Valerie & Rosenbach, Gracie, 2020. "Rural households in Papua New Guinea afford better diets with income from small businesses," Food Policy, Elsevier, vol. 97(C).
    8. Manabu Nose, 2018. "Road to Industrialized Africa: Role of Efficient Factor Market in Firm Growth," IMF Working Papers 2018/184, International Monetary Fund.
    9. Lars Ivar Oppedal Berge & Armando José Garcia Pires, 2020. "Gender, formality, and entrepreneurial success," Small Business Economics, Springer, vol. 55(4), pages 881-900, December.

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    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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