Chapter 13: LabourCasual Labour Permanent Labour

Definition Labour hired for a pre-specified short duration Labourers under a LT contract w/ employer

Tasks Carry out Observable tasks Carry out non-observable (fertiliser)/Supervises

Reason for Division

LT relationships, labour made accountable for (deliberate) error known only after certain period of time (not renewing contract/changing terms); scope of punishing casual labour narrowerLT relationships, labour made accountable for (deliberate) error known only after certain period of time (not renewing contract/changing terms); scope of punishing casual labour narrower

Characteristics On farm or off farm (usually gvt constr. project)High TurnoverEarn less, but also work less and less hard

Takes the form of regular farm servant (RFS)Almost only demanded by wealthier landed HHIncidence in Decline

Similarities Contribution of men/women roughly the same (男contribute more to owned land/⼥女dominate wage)Contribution of men/women roughly the same (男contribute more to owned land/⼥女dominate wage)

• 2 Statistical Observations:• Unemployment rates are significant => opp. cost of labour is well below market wage• High degree of seasonality in demand of labour: differing unemp rates in peak&slack season

Familiar Model:

Drawbacks of the Simple Model:• 不distinction<->casual&long-term: periods of time separated (today no impact on明天的market)• 不distinction<->labour power and labourers

• Some individuals be excluded from labour market b/c work capacity not allow participate• Equilibrium, labour indifferent<->working for current employer/entering labour market

• =>assumes all work is perfectly monitorable (no eff. wages) AND no involuntary unemp.• Fails to capture ex-ante methods, non-exogenous, responses to uncertainty of rural markets

• Emplyr wants to smooth fluctu. of employment&w; emplyes want to smooth fluctu. income

Poverty, Nutrition and Labour Markets: (beyond nutrition being of intrinsic interest)• Functional Role of nutrition => relationship <-> nutrition status&capacity to do sustained work• Energy Balance:

• Energy Input: periodic consumption of food as main source of energy input to HB• Point where nutrition meets economics => access to food is same as access to income

• Resting Metabolism (RM): significant portion of body’s requirement (varies greatly w/ weight)• Represents energy required to maintain body temperature, sustain heart rate etc.

• Energy Required for Work: energy required to carry out physical labopur• FAO’s 1973 estimate of 400kcal for moderate activity for 65kg European

• Clark and Haswell => believe it is sig. higher (poor often engaged in physical labour)• Storage and Borrowing: over LT should be a balance between 1=2+3

• In short&medium-run, => excesses or deficits are cushioned by human body• Sustained deficit leads to undernutrition => breakdown of body via illness etc.

Shape of S: ↑compensation for use of labour increases => this ↑ both• Greater supply of labour from each worker• Encourage a large number of workers to enter the labour market• In fact may bend down at some point (since income effect may outweigh)

Shape of D: Demand for labour depends on the going wage

• Key Insight:• Labour generates income&therefore create principal potential source of nutrition (good health)• AND good nutrition in turn affects capcity of body to perform tasks that generate income

• Model: (ignore possibility of borrowing and storage)

• Piece rate: the relationship between number of tasks performed & total income of that person• Labour Supply:

• Person wants to maximise income, given constraints imposed by capacity curve

• Now we have supply of a single person=>multiply person’s supply by # of indies in economy• Gap: captures effect that at certain threshold wage, labour supply jumps discontinuously

Introducing Labour Demand: (standard demand curve)

≅Poverty Trap think of the x-acis as income today, while y-axis is income you would have tomorrow (through wage you were paid for that labour)Shape of Curve: as you move from the left to right on the x-axis:• ↑ in amount of income/nutrition available to worker

• Initially, most of this nutrition goes into maintaining resting metabolism• Little extra energy left for work (ignoring reserves)

• Little energy left for work,∴work capacity in this region is low and• does not ↑ quickly as nutrition levels change

• Once RM taken care of, most additional energy input可以⽤用work• Then diminishing marginal returns, b/c natural limits imposed by

body’s frame restrict conversion of↑nutrition to ever↑work capacity• Curve might turn downards after a point (b/c of obesity)

If piece rate is v1=> will choose A, which yields largest possible feasible income for him (similar reasoning for all others)

If piece rate is v3=>this piece rate is just tangent to capacity curve => person can just about choose point C => if piece rate drops a little more, then amount of work that person can supply drops dramatically => e.g. Point D => b/c earnings not high enough to sustain higher work level! Low lvls of nutrition permit only v. low levels of work! Moderate to high levels create a rapid ↑ in work capacity

2 Things Happen:• Horizontal axis get blown up by number of labourers like person• The gap has been filled with dots

This is the ‘Normal Case’:• Market determines equilbrium piece rate v*• Everybody supplies a high level of work effort

• Level of work effort somewhere on the hump of cacpity curve for each labourer

Non-labour Income (Assets) and the Labour Market• ⼈人有別的sources of income => not correct to equate total income (nutritional standing) with wages• Assets augment income possibilities => individuals more easily participate in labour market

Asset Inequality, Nonlabour Income and the Labour Market:• Assumptions: 1 commodity (food); same capacity curves but different asset ownership (land)• Deductions:

• Demand curve for labour: sum of demands for labour that all HH have to cultivate land, i.e.• ⼤大家participates in 1 giant L. market even those who absorb own labour&不activ. participate

• Minimum Piece rate for Ability• For each ⼈人 (with/without) landholdings track minimum piece rate at which able to work

• ⼈人跟↑amounts of R can supply at↓threshold(R takes care of some nutritional needs)• Plot the minimum against people arranged in increasing order of land income

• People up to i* are landless, so minimum piece rate is unchanging; then falls as R↑

• Minimum Piece Rate for Willingness:• Minimum wage at which a person will be willing to work ↑ with amount of nonlabour income

• ⼈人 w/ other sources of income values leisure⽐比较⾼高=> sacrifices it only for⾼高compensation• Reconciling two Opposing Forces:

• At very low levels of nonlabour income (we are in the low ‘i’s)• ⼈人willing to work for anything so what really binds is min. piece rate at which can work

• If rate > v* (=v3) => excess supply => ↓ piece rate (bidding down)• If rate < v* => excess demand => bidding up

v* is an equilbrium, provided we accept the idea of unemployment

This equilibrium有involuntary unemployment, in the sense that unemployed people are strictly worse off than counterparts who find employment

BUT, the piece rate cannot be bid down b/c nobody can credibly supply the same amount of albour at any lower piece rate

Vicious Circle =>lack of labour demand => lower wages => low capacity to work => unemployment

Otherwise identical ⼈人 has access to a source of nonlabour income R => shift

At v1 the second is effectively excluded from the labour market

Even if piece rates are so high that both can supply labour (e.g. v1), the first is still earning more than the second through wages (not his rent!)

Wealth inequalities maginified further by labour market => People without assets cannot work as much at going w, b/c w is driven down by those with assets => only applies to workers close to point of tangengy (not rich ones)

• As non-labour income increases (we start moving into the higher ‘i’s)• The ability-based minimum rates falls (because we are entering the territory of people

who could supply good labour for even lower wages,since they have land income)• Thus, at some point, the willingness to work becomes the binding constraint

• Resulting U-Shape => minimum piece rate at which individuals are able and willing to work

• At rate v* people to the left of A and to the right of B are unemployed• Left of A: unable to work, unvoluntarily unemployed; unable to work w/out impairing health• Right of B: voluntarily unemp, NL income from land rent太⾼高to be attracted by pres. piece rate

• Effect of Land Reforms: transfer from gentry just to right of B to invol. unemployed left of A• Suppose land holdings are Two Immediate Effects: => there is a supply-side effect

• Beneficiaries of reform => more able to work at going market rates=>minimum price rate↓• Losers of reform => more willing to work => b/c nonlabour income has↓ => ↓min. piece rate• ∴ land reform has effect of ↓ min. piece rate for all who are directly affected by reform

• ∴, labour S↑=> equi L↑=>output in economy must↑(bulge rather than shift b/c 不↑ for all)• Point of argument: reforms have intrinsic benefits, but also important functional implication

Nutrition, Time, and Casual Labour Markets:• Rosenstein-Rodan: feature of labour markets=firms不capture entire benefit of training activities• Well-nourished workers=LT advantage to employers if can guarantee workers remain in his keep

• Else => collapse of nutritional status in a poor rural labour market• Nutrition as a parable for other long-term investments and casual labour => following dilemma

• Firms have to recoup investment => thus have to restrict labour movements• The restrictions have their own costs

For each pice rat in the market, supply of labour is given by amounts worked by all those whose minimum piece rates lie below the going market wage

i.e. those willing and able to work at the given piece rate

By varying the piece rate, you can derive a supply curve

The demand curve is as before

Model of Nutritional Status: person-specific investments that have effects over time• Worker’s current nutritional status depends on the history of that consumption (not just present)• Development of Model

• x=> intake; r=>rest. met. rate q=> exp. in physical activity, b=>energy released• Nutritional Status: state of indie’s physical health at any date; varies with stresses/inputs;

• Proxied by body mass: denoted by m; Given certain m, ↑ bt (borrowing from body) =>↓mt+1• Trade-Off to Employer:

• Employer pays wage (affects x) and determines pace of work (affects q)• However, assuming fixed wage, the ↑ q will lead to a ↑ b => lower nutritional status in t+1

• Further Derivations:• For a given genotype, resting metabolism positively correlated to body mass

• So↓m=>↓r=> body eats up less for resting metabolism;can use this more ‘efficiently’ for work• Resting metabolism effect: despite how ‘efficient’ it appears, cannot neglect social POV

• ↓m=>affect way in which input q is translated into work output:↑nutr. status↑work capacity• Description:

• At low levels of work => resting metabolism effect dominates• At higher levels of work => capacity effect (CE) dominates

• Problems:• B/c employment is casual, Ee may not physically be present in下period=↓incent to invest b/c

• If a person in good health can be identified by other employers• Market bids up his wage rate= employee reaps entire benefit of Er-financed investment

• 可以circumvented by signing legal preventing employee to wander off=> enforcement/ethical issues• Result:

• No Employer has no incentive to increase nutritional status of workers (or hours worked/wages)• ∴, casual labour market generally fails to improve nutritional status of workers

• Damages employers (if CE dominates): have to hire undernourished employees at higher cost• Prisoner’s Dilemma:

• B/c casual markets do not look ahead, create nutritional externalities that everybody ends up paying for => employees through bad health; employers through inefficient L

• This is worse the stronger adaptive possibilities are (i.e. the higher resting met. effect)

B as corresponding to the better nutritional status (i.e. not so good resting metabolism effect)Which one does employer prefer?a) resting metabolism effect dominates anyways

• actually benefits from hiring undernourishedb) Unlikely, esp. if involves manual labour =>

capacity effect will dominate• Prefer to sacrifice some current output from

employee, provided employee sticks around so employer can reap benefits

In order for such a Cycle to exist, certain conditions need to be satisfied:• Labour market不可以tight (i.e. NOT (low S rel to D OR attractive opportunities in other L markets)

• If tight => even with low work capacity => high returns => ↑work capacity over time (圆不完)• Limited Consumption Loans => this is reasonable

• Workers could borrow to ↑ nutritional intake in 1 and reapy with ↑ prod. in 2 => no trap!• BUT, nutrition traps may be Pareto Optimal => introducing credit market cannot have effect!

• Why? => For people to lend, must have gain; for people to borrow must have gain; 3rd parties are unaffected => But then this would imply that present allocation is not Pareto Optimal => therefore whenever pareto optimal, no credit market (ignoring effects on 3rd)

• Employers have little or no incentive to invest in worker capacity => Reasonable• Employers know that if worker ↑ prod. => ↑ outside option => finds job that pays more• This could be avoided through permanent contracts => possibly not ethical (=slavery?)

• IF LR relations were in place for OTHER REASON, the cycle may be broken• Must be a separate factor(s) that makes relationship inflexible: employee is costly to replace• Slave Economy=> slave diets were plentiful&varied; calorific value exceeded that of ‘Free men’• Domestic Servants: have characteristics which make them hard to replace

• McBride => analysed manuals written for English and French Housewives => good nutrition• Suggest a high level of energy for the servants

Unequal Sharing of Poverty => one of the great tragedies of poverty => inability to share it equally• Arises b/c for person to be prouctive, has to有minimum amounts of nutrition, care, and econ. res

• Extreme poverty=> equal division helps no one b/c average amounts 太⼩小了 (lifeboat ethics)This shows capacity curve of any individual of a householdLength of OA = Length of AB; assume 2 person householdIf total household income is Y*! If consumed all by one person => point B! If cons. equ. by 2 people => 2*A=B (similar triangles)! 2 options yield same total work capacityIf total household income is Y! If consumed all by one person => point E! If cons. equ. by 2 people => D<E∴ at incomes below critical threshold Y*, unequal consumption allocations create greater household work capacity than equal allocationsAt levels >Y* => equal division does better! Dotted curve gives capacity curve when equ. divided

Culprit => Convex section=> minimal amounts required as nutritional input before prod. gains kick inClarification=> extremity of result from simplicity of model (yet shows functional intraHH allocation)• Many reasons why extreme unequal outcome may not come about (e.g. you love family)• 不过有 tendency toward unequal treatment, IF income earning potential of HH of some concern• Drawing lots as a solution => NO, b/c targets of targets systematically denied nourishment

• Drawing/Redrawing lots on daily/weekly basis has same effect as equal consumption

The Receiving End: Who are the individuals who are so denied?• Elders => makes sense in light of nutrition having a functional role (apart form end in itself)

• Nutrition provides foundation for income-earning capabilities in future; old do not provide these• No one individual takes these decisions => nevertheless manifest itself in actions of family

• Widows: depend on other households, but those households do not depend on her for anything• Death rates jump by a factor of 3 if a women is a widow, rather than currently married• Death rates sig. higher for those widows in households not headed by self or sons

• Females: both adults and children

• Unless we assume that men ar emore fit than women for tasks of various sorts• Cannot make case for discrimination against women on lifeboat argument alone

• Intrahousehold discrimination against females reflects larger context of gender bias• e.g. psychlogical bias away from household work

• Evidence:• Females receive systematically lower nutrition in all age groups• If shortfall is measured relative to state requirements => discrepancy goes away

• But this can be misleading => ‘requirements’ assume sedentiary lifestyle• Other Gender Biases:

• Female child not brought to a clinic, even if medicalservices are free (dowrie)• Female child not given education b/c education of female children not expected to pay off

• Ghana => when children have to compete for res,男have edge b/c of ↑ perceived returns• As #brothers ↓ => ↑ prob. of going to secondary school

• On average almost twice as many female illiterates as there were males• Figures also include rich, non-constrained households, figure for poor people更higher

• Sex Ratios: Europe/NA=1.05; Asia very low, India=93 women for 100 men(Africa not skewed)• 有 >30 million unaccounted women in India (around 95 sug. evidence of discrimination)

• In social context where girls are costs (no income&dowry) and boys are income (work)• However, once a girl survivies there may be less evidence (since has to be attr. for boy)

• Complicates methodology of testing gender discrimination• Deaton Methodology: => inconclusive results

• If there is consumption discrimination against girls then ↑ in adult consumption (tobacco) should result as composition of children shifts in favour of girls

Permanent Labour Markets (Permanent=tied=attached)• Types of Permanent Labour: (all commit their labour to an employer for ext. period of time)

• Perform special tasks that require judgement and precision=> monitoring, plowing/irrigation• Have an effect on output that may be inseparable from host of other activities/events

• 3 Ways in which nonmonitorable tasks can be given by employer• Entrusted to family members => spontaneous interest in welfare of farm (for ⼩小farms)• Casual labour=>要supervision&judgement of success on output (late&imprecise indctr)• Hire subset of labour force on permanent basis (renewal based on good performance)

• Attached labour with no special tasks• Why Study Permanent Labour?

• Provides a break on rapid pace of migration/urbanisation• Creates variety in agricultural contracts that are of intrinsic interest (how protect对uncertainty)• Combining the above: institution of permanent labour shows complex long-run trends in dvlp

• ↓ of tied labour contracts usually follows dvlp => ↓ lvl of economic security• Tied Labor in India: (jajmani arrangement, Kamin free to work 别的if jajmani 不需要）

• Both types dominant in the past; Incidence has declined;marked regional variation

Permanent Labour: Nonmonitored Tasks: See NotesPermanent Labour: Casual Tasks (based on Bardhan [1983])• Demand for labor varies with season => mirrored in spot market (casual) wages

• Uncertainty: peak season demand depends on things out of control (weather)• Fluctuation Aversion: => related to Risk Aversion

• U of average income under a fluctuating stream exceeds average U received from that stream• Permanent Contracts that Smooth Income:

• If Er is risk-neutral and Ee risk averse: Er pays slightly less than average of fluctuating stream• Employer gains => pays less (risk neutral); employee gains => has smoothed income

• Problem: why don’t we observe the entire (or even most) labour force ‘tied’ in this fashion?• B/c applies only to Er who intend to hire in both seasons; if no need during slack, no tying!

• BUT => should still be scope of paying employee something in slack to ensure that he will work at a lower wage in peak season! => ∴not good reason

• Seasonality itself has declined => technology/infrastructure• BUT, as long as there is some seasonality there is scope for such a permanent contr.

• There is significant uncertainty regarding use of peak season labour (similar to 1)• BUT, still does not rule out possibility of a large tied labour force

• Tied labour should climb up to 70% w/out any risk for employr, but nowhere near this!• Fluctuating incomes pose little problem if they can be smoothed thru credit market

• Employees borrow against high peak income in order to consume more in slack• ↑ in credit market access has lead to ↓ in permanent labour (similar to ↓ in seasonality)

• Problem #2:• Contract implies sometimes promised wage under agreement<spot wage in casual market• But what guarantees that the worker does not take advantage of this?

• Non-renewal => but depends on certain conditions:• Contract must offer strictly more utility than option of being fired (wp!<<wc)• Worker must find it difficult to get a similar permanent job again

• Reasonable? if dvlp characterised by ↑ mobility&autonomy such perm. contracts↓• In small villages => worker infidelity spreads=> future access to perm. blocked• In advanced socity => yes, b/c of computerised information (e.g. credit card)• Intermediate stages: migration ↑, and informational networks of traditional society are

falling apart => difficult to keep track of individual histories => ↓ in # of such Contr.• %age of tied contracts↓to a point where they can be offered w/out fear of breach

• If tied contracts are harder to get, those that get them will not deviate from them• Santiniketan’s Rickshaws: lack enfocibiltiy destroyed possibility of making mutually beneficial deal

• => not really contract; form of reciprocity

Banerjee and Duflo: => sort of answers both 1&2 smooshed together• Introduction: => the poverty trap argument seems very cogent

• We believe that poor need food => QUANTITY• Delivery of food is a logistical nightmare => 1/2 of Wheat and 1/3 of rice lost in India

• Are there really a billion hungery people?• If there were starving people, they would spend everything on food => do not (36-79%)• OK, but at least the marginal dollar would all go into food? No: ↑1%in income=↑0.67% food exp• Money spent on food not spent to maximise calories/nutrients => buy tastier, expensive kcal.

• 2/3 of spending on grains was on calorie effective; the rest on wheat and rice; 5% sugar• Jensen and Miller => Giffen goods in China => flight to quality in food consumption

• B/c staples formed such a big part of their diet, subsidies had made them richer• Nutrition in India:

• Puzzle: consumption in all nutrients except for fat have declined amongst all groups• Change in food basket: money is spent on more expensive calories• Not driven by: ↓ incomes (actually ↑) OR ↑ food prices => (1980-2005 they actually ↓)• Unravelling the mystery:

• Assume: poor know what they are doing => if could be more prod. thru food, they would• ∴no nutritional poverty trap=> Even poorest earn enough for an adequate diet nowadays

• Due to green revolution; due to adoption of potato from Peru• Survey => do you have enough to eat => No dropped from 17%’83=>2%2005

• Perhaps they eat less because they are less hungry• e.g. they leak less calories (diarrhea)• Less strenuous physical work (empirically shown by Deaton and Dreze)

• However, logic of hunger based poverty traps are not flawed• Fogel =>Europe during middle ages and Renaissance not enough calories to support popula.

• Reason why there were so many beggars => literally incapable of any work• 穷 still forced to make horrific 选择:Tanzania witch killing; 60s draught India ⼩小 girls↑prob to die• ∴lack of food can be a problem time2time=>BUT world too rich for it to cause persistence of pov

• Can we assume poor are eating enough? => Yes, rather should be concerned about quality• Stunting => v. high in India (higher than in Africa, which is even poorer)

• Case and Paxson =>effect of height on job earnings accounted for by differences in IQ• On average ppl who have been nourished better are smarter and thus earn more

• Barker Hypothesis: conditions in Utero have long-term impact on child’s life-chances• If every mother took iodine capsules => ↑ 7.5% in total educational attainment in Tanzania

• Then, why don’t the poor invest in these supplements?• Not clear that prod. translates into higher earnings => e.g. employer doesn’t recognise

• Evidence: the self-employed Indonesian are more likely to buy supplement• Phillipine workers who on天work for a piece rate吃多calories than on天where work for wage

• People tend to be suspicious of outsiders who tell them what to eat• Antoine Parmentier: created recipes with potatoes to ‘fool’ the french into eating them

• Ignorance => micronutrients not even clear to scientists until recently• 不容易learn about value thru personal experience: ⼩小 gains for indie (although add up)

• More Important than food:• For the poor there are more important things than food => dowries, festivals etc.• South Africa => tradition requires a lavish funeral => OK as long as old

• But↑in AIDS=>↑premature deaths=> Reaction => Swaziland king banned lavish funerals• Things that make life less boring are a priority for the poor

• Sceptical about opportunities; rather focus on here and now; live as pleasantly as poss• Is there a nutritional Based Poverty Trap:

• No => most adults are out of it• The problem is quality => part. for people who do not decide what they eat (esp.孩⼦子)

• There may well be an S-Relationship between parents’ income & income of their children• Stupid Solutions: Giving them money/vouchers etc.• Good Solutions:

• Investing in children and pregnant mother nutrition• Develop ways to pack food that people like to eat with nutritionally more valuable things

• Governments still hung up on idea that poor need cheap grain

Does Nutrition Increase Productivity?• John Strauss => ↑ 10% in kcal => ↑ (at most) 4% productivity

• Also found that productivity and nutrition was inverted L-Shaped

• Thomas et Al (2006)

Random point: morbidity involve actual incidence of illness and reporting of it (which may increase as educational attainment increases)