Working Paper: NBER ID: w20958
Authors: Christian Dippel; Avner Greif; Daniel Trefler
Abstract: 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.
Keywords: coercion; wages; sugar prices; British West Indies; plantation economy
JEL Codes: F1; F16; N26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ease of evading the plantation system (P32) | power of plantation owners (P14) |
| power of plantation owners (P14) | incarceration rates (K14) |
| power of plantation owners (P14) | agricultural wages (Q11) |
| ease of evading the plantation system (P32) | incarceration rates (K14) |
| ease of evading the plantation system (P32) | agricultural wages (Q11) |
| decline in sugar prices (Q11) | power of plantation owners (P14) |
| decline in sugar prices (Q11) | coercive institutions (P37) |
| coercive institutions (P37) | agricultural wages (Q11) |