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

37 Pages Posted: 9 Jun 2020

See all articles by Abhijit V. Banerjee

Abhijit V. Banerjee

Massachusetts Institute of Technology (MIT) - Department of Economics

Dean Karlan

Northwestern University

Hannah Trachtman

Yale University

Christopher Udry

Northwestern University

Multiple version iconThere are 3 versions of this paper

Date Written: June 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.

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Suggested Citation

Banerjee, Abhijit V. and Karlan, Dean and Trachtman, Hannah and Udry, Christopher, Does Poverty Change Labor Supply? Evidence from Multiple Income Effects and 115,579 Bags (June 2020). NBER Working Paper No. w27314, Available at SSRN: https://ssrn.com/abstract=3621819

Abhijit V. Banerjee (Contact Author)

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

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Dean Karlan

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Hannah Trachtman

Yale University

Christopher Udry

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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