Returns to Capital for Whom? Experimental Evidence from Small Firm Owners and Workers in Ghana

Abstract

We document capital contributions from workers to their employers in a representative sample of small firms. We separately conduct a two-sided experiment in a sample of small employers, randomizing cash transfers to firm owners or a randomly selected worker. Transfers to either party increase firm profits in equal magnitude. Treated owners purchase additional business assets; treated workers purchase business assets that are used in their employing firm and experience wage increases. Our findings challenge the assumption of a separation of labor and capital in firms, with widespread implications for measurement and for understanding the nature of firms in our context.

Keywords: O15, J30, D23, E22