Productivity in piece-rate labor markets: Evidence from rural Malawi

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Raymond P. Guiteras; B. Kelsey Jack

journal article · Journal of Development Economics · 131, 42–61

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Becker-DeGroot-Marschak Wage Elicitation Mechanism

"By breaking the link between the stated reservation piece rate and the actual piece rate paid, it makes truthful revelation of minimum willingness to accept (WTA) the dominant strategy for the participant."

Comparative Advantage in Brawn vs. Precision Tasks

"Females sort 0.76 more units per day than men, and commit slightly fewer errors per unit (0.16)... This is plausible if women's outside options are more similar to bean sorting, while men's outside options depend more on physical capacity, as in the returns to brawn in Pitt et al. (2012)."

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

"Over the range of piece rates offered, the arc elasticity of participation with respect to the piece rate is 0.58 (Table S17), while the elasticity of output quantity with respect to the piece rate (controlling for the reservation piece rate) is 0.06 (Table S18)."

Flat Participation Fees and Income Targeting

"Subjects were also informed that they would receive a participation fee of 50 MWK for each day they participated, plus their earnings from the day's work... target earnings model will dampen the response to the piece rate regardless of the participation fee, and reasonable utility functions are unlikely to generate curvature sufficient for the participation fee to make a substantial difference."

Ganyu Informal Casual Labor Market Structure

"In Malawi, like in many rural agricultural settings in developing countries, labor markets are highly seasonal... In our study, workers are hired to sort dried beans into eight categories... a familiar, common task for ganyu."

Gender-Differentiated Selection and Outside Options

"Furthermore, the overall negative selection effect is driven exclusively by men, for whom a higher minimum WTA is associated with lower output quantity. We do not observe significant selection among women."

Intra-Week Task Familiarity and Learning Dynamics

"The quantity of output is also increasing with the day of the week, an effect that is robust to the inclusion of individual fixed effects... The number of errors per unit is decreasing in the day of the week, consistent with individuals gaining experience with the task."

Monopsonistic Employer Profit Maximization

"Under our main assumptions about the quality premium and supervision costs, the highest overall profit per bag comes from the lowest piece rate combined with worker penalties for low quality output, i.e., the contract that is least profitable to the worker."

Piece-Rate Incentive Effect vs. Worker Selection

"We find a positive relationship between output quantity and the piece rate, and show that this is solely the result of the incentive effect, not selection."

Quality Monitoring and Multitasking Substitution

"Monitoring led to higher quality output, at some cost to the quantity produced. However, workers do not demand higher compensation when monitored, and monitoring has no measurable effect on the quality of workers willing to work under a given piece rate."

Seasonal Labor Supply and Liquidity Constraints

"When the value of money is high, during the high labor demand season, workers have a lower WTA and are more responsive to incentives."

Unmonitored Quality Reciprocity (Gift Exchange)

"However, the tradeoff between quality and quantity suggests that workers may reciprocate higher piece rates in the absence of monitoring by sharing some surplus on the quality dimension."