Formal Sector Labor Supply Expansion Without Local Sector Displacement
RCTClinical Trial
A major concern with sector-specific employment interventions is that newly generated formal jobs might simply displace workers from traditional local employment sectors, resulting in zero net labor force participation gains or depressing local wages.
Picture this
Imagine a town where 100 people work on farms and 900 people sit idle at home. If a new software office opens and hires 50 people from the group sitting idle at home without pulling anyone away from the farms, the total number of working people expands cleanly without reducing farm production or lowering farm wages.
What the evidence says
Business process outsourcing employment increased by 4.6 percentage points (p < 0.01) with no statistically significant decline in agricultural labor (-0.008, p > 0.10) or non-BPO paid work (-0.012, p > 0.10), proving total female labor supply expanded from previously inactive populations.
- Who was studied
- 1,278 young women aged 18–24 across 160 rural Indian villages.
- How
- Panel regression analysis tracking female employment sector allocations across formal BPO jobs, traditional agricultural labor, and informal non-farm work.
What to do
Target new service-sector job creation toward non-participating demographic groups to expand aggregate labor force participation without disrupting existing local industries.
From the source
"There is no evidence that BPO employment displaced young women from other paid work... the increase in BPO work represented a net addition to overall paid employment among young women."
517 labor market opportunities QJE April '12.pdf