Information, Learning, and Wage Rates in Low-Income Rural Areas

In this essay, we present evidence that employers in rural areas of developing countries have imperfect information with regard to the productivity of heterogeneous workers. In addition to obtaining direct measures of the completeness of employer information we consider the implications of information asymmetries for the structure of casual labor markets. We then evaluate the extent to which casual labor markets do, in fact, exhibit these attributes. We find that: (1) there is adverse selection out of the time-rate labor market; (2) employers discriminate statistically: given two workers with different observed characteristics but the same actual productivity, the worker from the group with the higher average productivity will have a higher wage; (3) employers exhibit learning over time: the extent of employer ignorance is negatively related to labor-market exposure on the part of the workers; and (4) calorie consumption affects productivity but is not rewarded in the time-rate labor market. In concluding we argue that an analysis of wage and employment patterns and the implications of these patterns for human capital investment in rural areas of developing countries that ignored the role of information problems could yield misleading conclusions.