Macroeconomics

Labour rationing and forced entrepreneurship in village India

  • Blog Post Date 31 December, 2015
  • IGC Research on India
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Emily Breza

Harvard University

ebreza@fas.harvard.edu

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Supreet Kaur

University of California, Berkeley

supreet@berkeley.edu

When individuals are rationed out of the labour market, this not just decreases welfare but can also create labour misallocation as rationed workers may turn to less-productive self-employment activities. This behaviour of rationed workers has been referred to as “disguised unemployment” and more recently as “forced entrepreneurship”. In a developing country with high self-employment, an individual who cannot find work in the casual labour market may report spending time on their household enterprise, making it difficult to distinguish true productive self-employment from disguised unemployment or forced entrepreneurship. This project uses a novel experimental methodology to quantify labour rationing in rural labour markets, and decompose it into involuntary unemployment and forced entrepreneurship.

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