Working Paper: CEPR ID: DP14812
Authors: Abhijit Banerjee; Dean Karlan; Hannah Trachtman; Christopher Udry
Abstract: The income elasticity of labor supply is a central parameter of many economic models. We test the response of labor supply and effort toexogenous changes in income using data from a randomized evaluation of a multi-faceted grant program in northern Ghana combined with a bagmaking operation that we implemented. We find strong evidence of a positive "income effect" on labor supply. We argue that simple models with either labor or capital market frictions cannot explain the results, whereas a model that allows for positive physiological or psychological productivity effects from higher income fits with our findings.
Keywords: Poverty; Labor Supply; Income Elasticity
JEL Codes: H31; J22; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GUP program (H53) | labor supply (J20) |
| increased income from GUP program (H53) | increased labor supply (J20) |
| GUP program (H53) | increased earnings (J31) |
| increased earnings (J31) | increased labor supply (J20) |
| unconditional cash transfers (H53) | participation in bag production (L67) |
| unconditional cash transfers (H53) | higher quality bags (L15) |