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

  • Raymond P. Guiteras
  • B. Kelsey Jack

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19825.

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Date of creation: Jan 2014
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Handle: RePEc:nbr:nberwo:19825
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