Landless Labor Supply Income Effect
RCTClinical Trial
Landless agricultural laborers face severe earnings vulnerability during drought shocks because earnings depend entirely on local agricultural labor demand. When rainfall insurance payouts compensate laborers during bad weather realizations, the resulting income effect alters agricultural labor market participation and hours worked.
Picture this
Imagine a day-laborer who relies on picking crops to buy food. When a severe drought strikes, farm jobs vanish and wages crash. If the laborer bought an index insurance policy that pays out cash directly when the monsoon is delayed, that payout replaces lost wages. Because the worker now has emergency cash, there is less need to compete desperately for scarce farm work, leading the laborer to work fewer days or temporarily leave the labor market.
What the evidence says
In villages experiencing delayed monsoon payouts, receiving an insurance payout lowered labor force participation by 28.5 percentage points (t-stat = -1.635) and reduced harvest labor supply by 15.44 days (t-stat = -1.391) at median rainfall deficiency.
- Who was studied
- N = 3,678 landless agricultural wage workers aged 25-49 across rural Indian villages (515 in payout villages, 2,932 in non-payout villages).
- How
- Clustered RCT measuring labor force participation and total days worked following randomized delayed-monsoon index insurance offers and subsequent indemnification payouts (Rs. 300 to Rs. 1,200 per unit).
What to do
Market rainfall index insurance directly to landless wage laborers to allow households to maintain consumption during climate shocks without supplying distress labor.
From the source
"The estimates (and t-statistic) reported in the bottom row indicates that the participation rate of insured laborers after receiving payouts was 28.5 percentage points lower than that of otherwise identical laborers in households not offered insurance."
300_400 Wages General Equilibrium NBER Jan2014.pdf