American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Labor Rationing
American Economic Review
vol. 111,
no. 10, October 2021
(pp. 3184–3224)
Abstract
This paper measures excess labor supply in equilibrium. We induce hiring shocks—which employ 24 percent of the labor force in external month-long jobs—in Indian local labor markets. In peak months, wages increase instantaneously and local aggregate employment declines. In lean months, consistent with severe labor rationing, wages and aggregate employment are unchanged, with positive employment spillovers on remaining workers, indicating that over a quarter of labor supply is rationed. At least 24 percent of lean self-employment among casual workers occurs because they cannot find jobs. Consequently, traditional survey approaches mismeasure labor market slack. Rationing has broad implications for labor market analysis.Citation
Breza, Emily, Supreet Kaur, and Yogita Shamdasani. 2021. "Labor Rationing." American Economic Review, 111 (10): 3184–3224. DOI: 10.1257/aer.20201385Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- J22 Time Allocation and Labor Supply
- J23 Labor Demand
- J31 Wage Level and Structure; Wage Differentials
- J64 Unemployment: Models, Duration, Incidence, and Job Search
- O15 Economic Development: Human Resources; Human Development; Income Distribution; Migration
- R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics