Working Paper: NBER ID: w19825
Authors: Raymond P. Guiteras; B. Kelsey Jack
Abstract: 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.
Keywords: incentives; selection; productivity; labor markets; Malawi
JEL Codes: C93; J22; J24; J33; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher piece rates (J33) | output (C67) |
| higher piece rates (J33) | less productive workers (J29) |
| higher piece rates (J33) | negative selection effect (C24) |
| higher piece rates + gender interaction (J33) | lower output quantities for men (J19) |
| monitoring (E63) | quality improvement (L15) |
| monitoring (E63) | quantity decrease (L42) |