Re-evaluating the Returns to Labour in Microenterprises: A Statistical Replication and Critical Review of de Mel et al. (2019)

This paper replicates de Mel et al. (Am Econ J Appl Econ 11(1):202–235, 2019), a field experiment in Sri Lanka evaluating the effects of wage subsidies on microenterprise employment. While the original study found no lasting impact on profits or firm scale—interpreting this as evidence of diminishing labour returns—this replication confirms the empirical patterns but challenges that conclusion. It argues that short-lived gains likely reflect deeper structural and behavioural constraints, such as limited managerial capacity, informal labour dynamics, and institutional uncertainty. Beyond verification, the paper extends the original heterogeneity analysis, revealing that firms with pre-existing employees were significantly more responsive to the subsidy, while solo firms were not—shifting the focus from sectoral effects to baseline employment structure. This refinement offers new insights for targeting wage subsidies. The replication also raises ethical concerns about temporary hiring, which may erode worker morale and firm stability. By reinterpreting null results as symptoms of policy design gaps rather than firm-level inefficiency, the study underscores the need for bundled, ecosystem-level support. It draws concrete lessons for India’s microenterprise schemes, arguing that wage subsidies alone are insufficient for durable transformation. Replication, in this light, becomes a tool for theory building and policy diagnosis—not just empirical scrutiny.