Demand for Flexibility in Labor Arrangements: Evidence From Rural India

This study examines the demand for flexibility in work arrangements among casual laborers in Odisha, and how this affects worker absenteeism and firm productivity.

There is a growing policy consensus that increases in firm productivity, and, in particular, a move from small- to medium-sized enterprises, is an important growth strategy. High worker absenteeism in casual labor markets hinders firm productivity as employers bear large costs in securing a reliable labor supply. A large body of recent work has focused on removing potential market frictions that impede firm growth, with an emphasis on interventions in the credit or skills sector. Relatively less attention has been paid to the potential frictions in the labor market, despite labor being the biggest factor input in production for small firms in low-income countries. With the aim of exploring the case of this friction – high absenteeism, this study examines the demand for flexibility in work arrangements among casual workers in the state of Odisha.
This study is being conducted in the state of Odisha, one of the poorest states in the country. It is using a revealed preference Approach to empirically document workers’ preference and willingness to pay for flexibility in work arrangements. Researchers will first measure how much workers value contract flexibility in terms of forgone wage earnings using an incentive-compatible choice experiment. Subsequently, a comparison of worker labor supply, earnings and productivity under randomly-assigned contracts will be done, conditional on workers’ revealed preference for flexibility.
While there exists anecdotal observation of high worker absenteeism hindering firm productivity, there is virtually no empirical evidence documenting (1) the magnitude of this problem in casual labor markets; (2) its impact on firm growth and productivity; and (3) its impact on household poverty. Documenting a demand for flexibility among casual laborers is an important step towards reconciling why high levels of reneging and worker absenteeism exist alongside high levels of reported involuntary unemployment in this setting. Gaining an empirical understanding of frictions that arise in the labor market has important consequences for firm productivity and growth as well. This work is one of the first to experimentally explore the link between the structure of labor contracts and worker absenteeism. Results from the study will contribute to an existing literature on workers’ demand for flexibility and alternate work arrangements in developed countries.

Thematic Area

Small, Growing Businesses and Employment

Project Leads

Nandita Krishnaswamy, Suanna Oh, and Yogita Shamdasani