Does Poverty Change Labor Supply? Evidence from Multiple Income Effects and 115,579 Bags

39 Pages Posted: 28 May 2020

See all articles by Abhijit V. Banerjee

Abhijit V. Banerjee

Massachusetts Institute of Technology (MIT) - Department of Economics

Dean S. Karlan

Northwestern University - Kellogg School of Management; Yale University; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Hannah Trachtman

Yale University

Christopher Udry

Northwestern University

Multiple version iconThere are 3 versions of this paper

Date Written: May 2020

Abstract

The income elasticity of labor supply is a central parameter of many economic models. We test how labor supply and effort in northern Ghana respond to exogenous changes in income and wages using a randomized evaluation of a multi-faceted grant program combined with a bag-making operation. We find that recipients of the grant program increase, rather than reduce, their supply of labor. We argue that simple models with either labor or capital market frictions are not sufficient to explain the results, whereas a model that allows for a positive psychological productivity effect from higher income does fit our findings.

Keywords: income elasticity, Labor Supply, poverty

JEL Classification: H31, J22, O12

Suggested Citation

Banerjee, Abhijit V. and Karlan, Dean S. and Trachtman, Hannah and Udry, Christopher, Does Poverty Change Labor Supply? Evidence from Multiple Income Effects and 115,579 Bags (May 2020). CEPR Discussion Paper No. DP14812, Available at SSRN: https://ssrn.com/abstract=3612883

Abhijit V. Banerjee (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-252D
Cambridge, MA 02142
United States
617-253-8855 (Phone)
617-253-6915 (Fax)

Dean S. Karlan

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Yale University ( email )

Box 208269
New Haven, CT 06520-8269
United States

Innovations for Poverty Action ( email )

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
United States

Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Hannah Trachtman

Yale University

Christopher Udry

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
80
PlumX Metrics