CREB - Center for Research in Economics and Business

Search and Matching Frictions in Casual Day Laborers

Project members:
Maryiam Haroon, Lahore School of Economics
Christina Brown,University of California Berkeley

The research has been funded by International Growth Centre (IGC) and the Private Enterprise in Developing Countries (PEDL). A large majority of households living in extreme poverty receive income from casual day labour, which is characterised as short jobs for typically 1-5 days, in construction, agriculture or manual labour. In Pakistan, the situation is even starker as over 85% of construction work and agricultural labour depends on casual labour markets. Such short jobs are typically found through social connections or by going to a “labour stand”, an intersection point where low skilled labourers are matched with employers looking to hire for a day or two. While spot markets like these are generally thought of to be the free market ideal, these markets appear to be rife with failures including information asymmetries, wage rigidity and large search costs for employees and employers. In developing economies, the stronger presence of such informational labour market frictions often increases dependence on social relationships with evidence suggesting that 72% of workers are hired through social networks in South and South-East Asia. To understand this process, Day Labour project seeks to understand the role social networks and search frictions play in the context of casual labourers in Pakistan. The project is implementing a Randomized Control Trial (RCT), by partnering with an existing construction firm in Lahore by varying different aspects of the hiring process to better understand the market for casual day labourers.