Labour rationing: Evidence from Indian labour markets


Published 15.09.21
Photo credit:
© Abbie Trayler-Smith/Panos Pictures/Department for International Development

Many rural workers turn to self-employment for lack of available jobs, not visions of entrepreneurship

Read “Labor rationing” by Emily Breza, Supreet Kaur, and Yogita Shamdasani here.

Low employment opportunities in many rural, low-income settings lead many workers to be “rationed”— unemployed or pursue self-employment activities for lack of available jobs. In this VoxDevTalk, Supreet Kaur discusses her recent work with co-authors Emily Breza and Yogita Shamdasani in which they use external labour market shocks in rural Indian villages to test for the presence of rationed workers, those who would prefer wage labour despite its unavailability. Implementing external hiring shocks that take on average 24% of available male workers out of the local labour market, they test for effects on local wages and employment levels to determine whether those who fill the positions were rationing labour.

With no rationed labour, the economic expectation would be for wages to rise and employment levels to slightly fall following the reduction in the labour supply. However, the authors find that in lean seasons with less local economic activity, the exodus of local labour following the external hiring shocks have no change on local wages and employment levels. These results show that there was enough labour available for those positions to be filled. 

This gives an estimate of the lower-bound of how many people wanted jobs but could not find them in the research context, and highlights the need for better labour market programmes to be designed to address the large amount of available wage labour in lean seasons.