PhD student 'becomes the demand'

April 26, 2011

Understanding labor patterns in rural Malawi

Jessica Goldberg understands the precepts of labor economics well enough to know when something doesn't seem right.

"I see things all the time in Malawi where I observe someone's behavior and I think, 'That is not what was predicted by the model I was taught in my PhD program,' said Goldberg, a joint PhD candidate in economics and public policy. Such observations helped her identify the crux of her recent research, which suggests daily laborers in rural Malawi will take the same job even if their wage drastically changes each week.

Goldberg's findings on labor supply elasticity could impact the design of public sector employment programs in the region. Malawi is one of 29 countries in sub-Saharan Africa with such a program. The goal, she said, is to implement policies that allow workers to take advantage of high wages and save "enough of a cushion to decline low-wage offers.

The research design: real work for real money

Goldberg first visited Malawi, located in southeastern Africa, in the summer of 2007 as a research assistant for Dean Yang and Xavier Gine. Speaking with farmers about their finances, Goldberg learned about ganyu, a common arrangement for unskilled day labor in developing countries. Workers are hired on a daily basis to do manual work, with no contract or guarantee of future employment.

"One of the things they told me is they did ganyu when they needed cash, and they didn't save the money, she said. "They spent it immediately for things they couldn't produce at home.

Wages are highest when employers need the help most—in the planting season (November and December) and again for the harvest in April. Most rural Malawians grow their own food, so wages must also rise at those times to entice workers to spend time away from home.

"For many people in developing countries, their own labor is their most valuable resource, Goldberg said. "Understanding how people manage this resource is a first step toward understanding what policies or financial tools might help them use the resource more efficiently.

Prior research on how wages affect the labor supply is relatively scarce. In most empirical studies of labor elasticities, it is difficult to pinpoint whether changes in employment are produced by a shift in supply or demand.

To clear this hurdle, Goldberg ran the first field experiment of its kind by becoming the demand. Working with a local horticultural organization, Goldberg hired workers previously known to participate in ganyu for one of two commonly offered tasks, hoeing fields and depositing compost. She controlled the fluctuation of wages.

"I hire real people, I have them do real work, I pay them real money, she said. "What's funny to them is that the wages change.

Goldberg hired 529 workers across ten villages located in Lobi, near the Mozambique border. Workers were offered employment one day a week for twelve weeks. All workers in a village received the same wage, set one week in advance. "You can make your decision about whether or not you want to work already knowing the wage, she said.

Over the 12 weeks, Goldberg varied wages from 30 kwacha ($US 0.21) to 140 ($US 1.00), representing the middle 80 percent of offered wages in rural Malawi. The villages were far enough apart that workers would not know the wages in other villages.

In observing the decisions of the same 529 workers, "Everyone acts as their own control group, Goldberg said. "I don't have to compare that individual to other people who may or may not be like him. I can compare him to himself.

Those individuals ultimately displayed very similar patterns, and the overall trend confirmed what farmers had told Goldberg in 2007: willingness to do ganyu does not change much, even for a much different daily wage. The elasticity of labor officially recorded was 0.17, which meant a 10 percent increase in wages produced only a 1.7 percent boost in job acceptance.

Goldberg cautions this may not be true of all rural areas or even true of Malawi year-round, and that more research must be done to understand how other factors impact their economic decisions, such as changes to the price of their crops and financial aid programs.

She hopes her research can help policymakers understand how, in the context of budgetary pressures, to best balance the dual goals of public sector employment programs: infrastructure development (i.e. building roads) and income support.

Home away from home

Goldberg has found a comfortable existence in Malawi, staying 4-9 months at a time in an apartment in Lilongwe, the capital city. She goes to the office, pores over surveys with students, cooks dinner with friends, and finds time for Ultimate Frisbee. "In some ways, my life in Lilongwe is not that much different than my life in Ann Arbor, she said.

A developing country still presents obstacles to conducting first-rate research. Fuel shortages are not uncommon, threatening to prevent survey teams from reaching the villages, and acquiring the precise currency to pay workers could mean an hours-long ordeal at the bank.

"Sometimes you're running Stata by candlelight because the electricity's out and you're trying to get as much done as possible before your laptop battery dies, she said.

Such occurrences won't keep Goldberg away, though. She'll return to Malawi in May to continue ongoing projects. In August, she will join the Department of Economics at the University of Maryland as an assistant professor.

"I love being out in the villages because it's the best way to learn about what's really happening, she said. "I can look at numbers all day long, but it's by talking to people and letting them tell their stories that I understand the real challenges that people face.

Below is a formatted version of this article from State & Hill, the magazine of the Ford School. View the entire Spring 2011 State & Hill here.