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Productivity in Piece-Rate Labor Markets: Evidence from Rural Malawi

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  • Guiteras, Raymond P.
  • Jack, B. Kelsey

Abstract

Piece-rate compensation is a common feature of developing country labor markets, but little is known about how piece-rate workers respond to incentives, or the tradeoffs that an employer faces when setting the terms of the contract. In a field experiment in rural Malawi, we hired casual day laborers at piece rates and collected detailed data on the quantity and quality of their output. Specifically, we use a simplified Becker-DeGroot-Marschak mechanism, which provides random variation in piece rates conditional on revealed reservation rates, to separately identify the effects of worker selection and incentives on output. We find a positive relationship between output quantity and the piece rate, and show that this is solely the result of the incentive effect, not selection. In addition, we randomized whether workers were subject to stringent quality monitoring. Monitoring led to higher quality output, at some cost to the quantity produced. However, workers do not demand higher compensation when monitored, and monitoring has no measurable effect on the quality of workers willing to work under a given piece rate. Together, the set of worker responses that we document lead the employer to prefer a contract that offers little surplus to the worker, consistent with an equilibrium in which workers have little bargaining power.

Suggested Citation

  • Guiteras, Raymond P. & Jack, B. Kelsey, 2017. "Productivity in Piece-Rate Labor Markets: Evidence from Rural Malawi," CEnREP Working Papers 264959, North Carolina State University, Department of Agricultural and Resource Economics.
  • Handle: RePEc:ags:nccewp:264959
    DOI: 10.22004/ag.econ.264959
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    4. Krah, Kwabena & Michelson, Hope & Perge, Emilie & Jindal, Rohit, 2019. "Constraints to adopting soil fertility management practices in Malawi: A choice experiment approach," World Development, Elsevier, vol. 124(C), pages 1-1.
    5. Ku, Hyejin, 2019. "The effect of wage subsidies on piece rate workers: Evidence from the Penny Per Pound program in Florida," Journal of Development Economics, Elsevier, vol. 139(C), pages 122-134.
    6. Luc Behaghel & Karen Macours & Julie Subervie, 2019. "How can randomised controlled trials help improve the design of the common agricultural policy?," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 46(3), pages 473-493.
    7. Abhijit Banerjee & Dean Karlan & Hannah Trachtman & Christopher R. Udry, 2020. "Does Poverty Change Labor Supply? Evidence from Multiple Income Effects and 115,579 Bags," NBER Working Papers 27314, National Bureau of Economic Research, Inc.
    8. Hyuncheol Bryant Kim & Seonghoon Kim & Thomas T. Kim, 2020. "The Role of Career and Wage Incentives in Labor Productivity: Evidence from a Two-Stage Field Experiment in Malawi," The Review of Economics and Statistics, MIT Press, vol. 102(5), pages 839-851, December.
    9. Jack, B. Kelsey & McDermott, Kathryn & Sautmann, Anja, 2022. "Multiple price lists for willingness to pay elicitation," Journal of Development Economics, Elsevier, vol. 159(C).
    10. Dike, Onyemaechi, 2019. "Informal employment and work health risks: Evidence from Cambodia," MPRA Paper 92943, University Library of Munich, Germany, revised 24 Mar 2019.
    11. Jin, Zhangfeng & Pan, Shiyuan, 2020. "Incentive Pay and Firm Productivity: Evidence from China," GLO Discussion Paper Series 479, Global Labor Organization (GLO).
    12. Amodio, Francesco & Martinez-Carrasco, Miguel, 2019. "Inputs, Incentives, and Self-selection At the Workplace," CEPR Discussion Papers 14213, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    Labor and Human Capital;

    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
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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