Labor Market Information Provision and Job FairsService Sector Female Labor Preference

Participation vs. Effort Elasticity (Extensive vs. Intensive Margin)

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In Simple Words

Think of opening a seasonal fruit-picking site. Increasing daily pay slightly attracts many more villagers from surrounding areas to show up for work, whereas workers already on site only pick fruit a tiny bit faster.

Responses to piece rates in the Malawi experiment

Taking the offered job
Stronger response: 0.58
Output once hired
Weaker response: 0.06

Percentage response per percentage pay change over 5–25 MWK. Participation uses attendees; output uses hired workers, adjusting for minimum accepted pay.

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Research question

Employers setting compensation schemes must distinguish whether wage increases primarily mobilize additional labor participation or increase individual worker productivity on the job.

Participants

N = 689 participants across 1,875 worker-days in rural Malawi.

Study Design

Randomized field experiment measuring arc elasticities of participation (hiring uptake) versus daily sorting volume across 5 piece-rate levels (5 to 25 MWK).

Results

Arc elasticity of labor participation (extensive margin) with respect to the piece rate is 0.58, whereas the elasticity of daily output quantity (intensive margin) with respect to the piece rate is only 0.06 (controlling for reservation rates).

Takeaway

Adjust piece-rate levels to expand total workforce participation rather than expecting proportional productivity gains per individual worker.

Source and citation

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Related findings

  • Non-Linear Compensated Labor Supply Elasticity →Labour & employment

    Imagine climbing a walking path that starts as a broad, gentle slope where small increases in wage pull people to work significantly more hours, but then abruptly curves into a steep cliff around full-time hours where large wage increases yield almost no additional work hours.

  • Extensive Margin Labor Force Participation Inertia →Labour & employment

    Imagine a member of a gym who gets a cash gift. Instead of canceling the gym membership entirely, the member keeps going to the gym but works out for fewer minutes per session, because social expectations and established routines keep the person attached to being an active gym member.

  • Intensive Margin Daily Labor Supply Adjustment →Labour & employment

    Adjusting labor supply on the intensive margin in a developing market is like a freelance handyman who cannot change his hourly rate or get a full-time contract; instead, he increases his total earnings by booking and working additional full workdays throughout the week whenever jobs become available.

  • Intensive Margin Dominance in Labor Supply Adjustment →Labour & employment

    Imagine a worker who wins a prize and decides to spend less time working. Instead of handing in a resignation letter and walking away from employment completely, the worker simply cuts back from working five days a week down to four days, keeping the exact same job and hourly pay rate.