A Supply Side Rationale for Wage Floors in Agricultural Labor Markets

Photo Credit: Saurabh Chatterjee via Flickr



In many rural settings, from Malawi to India, active rural labor markets exist. However, existing research suggests that daily wages are too high for firms to be able to hire all workers who want jobs. This inefficiency may generate involuntary unemployment, misallocation of labor, and lower agricultural output. Researchers are conducting a pilot evaluation in Odisha, India to test whether high wages rate result from informal collusion between workers; workers choose not to take up jobs at lower wage, even in times of high unemployment, because other workers would socially punish them. The researchers are testing three hypotheses:

  1. Workers would privately accept work at a wage below the prevailing wage – especially during lean periods.
  2. A worker will be less likely to take up work below the prevailing wage if others can observe the worker’s decision to do so.
  3. Workers will be willing to pay to sanction workers who take up work below the prevailing wage.

In each study village, researchers are partnering with a local agricultural employer during non-peak times (not during transplanting or harvest). The employer hires workers for one day on their land. Importantly, workers in the study make decisions about real job opportunities, often involving work for a farmer in their village who is typically familiar to the workers. Researchers will randomly vary the wage offered by the employers and whether other job seekers can observe the wage, measuring the effects on workers’ acceptance of takeup of job offers. Researchers will also use a lab-in-the-field exercise to test for the presence of worker sanctions against laborers who would choose to accept employment below the wage floor. Researcher will also explore whether employers would hire more labor if the wage were lower to understand the potential for evaluating related policy interventions.