Growth is closely related to structural transformation, the reallocation of economic activity among sectors. A well-functioning labor market plays an important role in this process by enabling workers to find employment in the growing, more productive sectors. We review the literature on labor market frictions that limit worker flows, slow structural transformation, and trap workers in poverty. The three main areas of focus are the extent of sectoral wage gaps, labor market dynamics, and evidence on specific frictions. Evidence in each area points to the presence of frictions that hinder worker reallocation. The literature also suggests policies that may help remediate frictions and improve worker mobility. We conclude by noting several open questions that provide promising avenues for future work.
We deliver one month's average profit to a randomly selected group of female microenterprise owners in Dandora, Kenya, arriving just in advance of an exponential growth in COVID-19 cases. Relative to a control group, firms recoup about one third of their initial decline in profit, and food expenditures increase. Control profit responds to economic conditions and government announcements during our study period, and treatment effects are largest when control profit is at its lowest. PPE spending and precautionary management practices increase to mitigate the health risks of more intensive firm operation, but only among those who perceive COVID-19 as a major risk.
I consider the aggregate impact of low intermediate input intensity in the agricultural sector of developing countries. In a dynamic general equilibrium model with idiosyncratic shocks, incomplete markets, and subsistence requirements, farmers in developing countries use fewer intermediate inputs because it limits their exposure to uninsurable shocks. The calibrated model implies that Indian agricultural productivity would increase by 16% if markets were complete, driven by quantitatively important increases in both the average real intermediate share and measured TFP through lower misallocation. I then extend the results to consider the importance of risk in other contexts. First, the introduction of insurance decreases cross-country differences in agricultural labour productivity by 14%. Second, scaling the introduction of improved seeds to decrease downside risk reduces inequality by reallocating resources from rich to poor farmers via equilibrium effects. This reallocation substantially increases aggregate productivity relative to what would be expected from extrapolating the partial equilibrium impact.
Rural isolation can limit access to basic services and income-generating opportunities. Among some communities, rainfall induced flooding can cause increased uncertainty where first-mile transportation infrastructure is limited. In Rwanda, this challenge is apparent, where 90% of the population below the poverty line live in rural areas that are typically mountainous with frequent flooding - events that may be increasing in frequency and severity as the climate changes. To reduce these transportation barriers, the non-profit organization Bridges to Prosperity (B2P) plans to construct hundreds of trailbridges in Rwanda between 2018 and 2023. This scale of rural infrastructure services presents an opportunity for experimental investigation of the effects of these new trailbridges on economic, health, agricultural and education outcomes in rural communities. In this paper, we present a cohort study evaluating the potential community benefits of rural trailbridges - including economic, health and social outcomes for Rwandan communities experiencing environmental change. We examined households living near 12 trailbridge sites and 12 comparison sites over February 2019–March 2020. We found that labor market income increased by 25% attributable to the trailbridges. We did not observe any significant effects on agricultural income, education or health outcomes, however given the small sample and short duration of this study we anticipate observing additional outcomes within the recently started 200 site, 4 year trial.
We measure the impact of increasing integration between rural villages and outside labor markets. Seasonal flash floods cause exogenous and unpredictable loss of market access. We study the impact of new bridges that eliminate this risk. Identification exploits variation in riverbank characteristics that preclude bridge construction in some villages, despite similar need. We collect detailed annual household surveys over three years, and weekly telephone followups to study contemporaneous effects of flooding. Floods decrease labor market income by 18 percent when no bridge is present. Bridges eliminate this effect. The indirect effects on labor market choice, farm investment, and savings are quantitatively important and consistent with the predictions of a general equilibrium model in which farm investment is risky, and households manage labor market risk and agricultural risk simultaneously. In the calibrated model, the increase in consumption-equivalent welfare is substantially larger than the increase in income due to the ability to mitigate risk.