Three Essays on Labor and Government Policy in Developing Countries

Abstract

In this dissertation, I examine household labor allocation in two developing countries: India and Malawi. I focus on the interaction between government policies and household labor allocation decisions. The first and second papers look at labor allocation and an Indian government program, while the first and third papers explore labor allocation to non-farm self-employment. In the first paper, I analyze the effects of an increase in the rural wage in India -- induced by the government's Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGS) -- on non-farm self-employment. Households significantly decrease labor allocation to non-farm self-employment following implementation of the program. Moreover, this effect is higher in areas with higher rainfall variation, which I use as a proxy for agricultural production risk. Taken together, these findings support the view that many non-farm enterprises are subsistence enterprises, started due to a lack of remunerative labor opportunities and to diversify production risk. In the second paper, I continue analyzing the effects of NREGS. Using a unique dataset with GPS location data, I show that the wage effects of the program are spatially heterogeneous. The wage effects are largest on the interior of treated districts, far from untreated areas. In contrast, areas on the border between treated and untreated areas see no wage increase at all. Estimates suggest labor is mobile on a daily basis in a radius of around 15 to 20 kilometers. In the third paper, coauthor Peter Brummund and I study labor allocation across agricultural and non-farm production in Malawian households. Economic theory suggests that households should equate the marginal revenue product of labor (MRPL) across productive activities within the household. We test this assumption by estimating production functions for agricultural and non-farm production. We show that MRPL in agricultural production is significantly higher than MRPL in non-farm production. Moreover, consistent with a large body of literature on the sectoral productivity gap, we show that the average product of labor is higher in non-farm production. These results suggest a rethinking of how we measure the sectoral productivity gap may be warranted.