Does Poverty Change Labor Supply? Evidence from Multiple Income Effects and 115,579 Bags

Abhijit Banerjee, Dean Karlan, Hannah Trachtman, Christopher R Udry

Research output: Working paper

Abstract

The income elasticity of labor supply is a central parameter of many economic models. We test the response of labor supply and effort to exogenous changes in income using data from a randomized evaluation of a multi-faceted grant program in northern Ghana combined with a bag-making operation that we implemented. We find strong evidence of a positive "income effect" on labor supply. We argue that simple models with either labor or capital market frictions cannot explain the results, whereas a model that allows for positive physiological or psychological productivity effects from higher income fits with our findings.
Original languageEnglish
Place of PublicationCambridge, Mass
Number of pages1
StatePublished - 2020

Publication series

NameNBER working paper series
PublisherNational Bureau of Economic Research
Volumeno. w27314

ULI publications

  • uli

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