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Outside Options, Coercion, and Wages: Removing the Sugar Coating


  • Christian Dippel
  • Avner Greif
  • Daniel Trefler


In economies with a large informal sector firms can increase profits by reducing workers’ outside options in that informal sector. We formalize this idea in a simple model of an agricultural economy with plantation owners who lobby the government to enact coercive policies—e.g. the eviction and incarceration of squatting small-hold farmers—that reduce the value to working outside the formal sector. Using unique data for 14 British West Indies ‘sugar islands’ from the year of slave emancipation in 1838 until 1913, we examine the impact of plantation owners’ power on wages and coercion-related incarceration. To gain identification, we utilize exogenous variation in the ease with which smallholders could evade the plantation system in the different islands over time. Where evading the plantation system became exogenously easier, planter power declined, incarceration rates dropped, and agricultural wages rose, accompanied by a decline in formal agricultural employment. Most of the wage increase can be statistically explained by the reduced coercion of smallholders.

Suggested Citation

  • Christian Dippel & Avner Greif & Daniel Trefler, 2015. "Outside Options, Coercion, and Wages: Removing the Sugar Coating," NBER Working Papers 20958, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20958
    Note: DAE ITI POL

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    References listed on IDEAS

    1. Bobonis, Gustavo J. & Morrow, Peter M., 2014. "Labor coercion and the accumulation of human capital," Journal of Development Economics, Elsevier, vol. 108(C), pages 32-53.
    2. ., 2012. "A brief historical geography of capitalism," Chapters,in: A World in Emergence, chapter 1, pages 1-14 Edward Elgar Publishing.
    3. repec:wly:japmet:v:32:y:2017:i:2:p:233-254 is not listed on IDEAS
    4. Naritomi, Joana & Soares, Rodrigo R. & Assunção, Juliano J., 2012. "Institutional Development and Colonial Heritage within Brazil," The Journal of Economic History, Cambridge University Press, vol. 72(02), pages 393-422, June.
    5. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," Review of Economic Studies, Oxford University Press, vol. 9(1), pages 58-73.
    6. Kevin H. O'Rourke & Jeffrey G. Williamson, 2001. "Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650592, January.
    7. ., 2012. "An historic turning point," Chapters,in: The Age of Austerity, chapter 1, pages 1-20 Edward Elgar Publishing.
    8. James G. Mackinnon & Matthew D. Webb, 2017. "Wild Bootstrap Inference for Wildly Different Cluster Sizes," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(2), pages 233-254, March.
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    Cited by:

    1. Danzer, Alexander M. & Grundke, Robert, 2016. "Coerced Labor in the Cotton Sector: How Global Commodity Prices (Don't) Transmit to the Poor," IZA Discussion Papers 9971, Institute for the Study of Labor (IZA).
    2. Jean-Paul Carvalho & Christian Dippel, 2016. "Elite Identity and Political Accountability: A Tale of Ten Islands," NBER Working Papers 22777, National Bureau of Economic Research, Inc.
    3. Dippel, Christian, 2015. "Foreign aid and voting in international organizations: Evidence from the IWC," Journal of Public Economics, Elsevier, vol. 132(C), pages 1-12.

    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • N26 - Economic History - - Financial Markets and Institutions - - - Latin America; Caribbean

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