Ethiopia: More sweatshops for Africa?

IMG_1060What is the impact of a factory job on a worker’s welfare? Employment and anti-poverty programs typically emphasize entrepreneurship in the informal sector and productivity in smallholder agriculture. Both are crucial sectors.

We hypothesize, however, that current development strategies underplay the importance of large firms to development and the welfare gains that come from factory work. One reason is the near absence of evidence on the welfare effects of factory work.

We are conducting a novel experiment that compares investments in industrial labor to self-employment in the informal sector. An Ethiopian venture capital firm, Access Capital SC, plans to open several medium-size firms in 2010 in different sectors and regions of the country, creating hundreds of low-skill jobs. With thousands of applicants to these positions, Access Capital has agreed to select its new hires randomly from the pool of qualified applicants, allowing the first control trial of formal sector wage labor.

The evaluation has both policy and academic objectives. First, we want to test the power of factory labor to build the capabilities of the poor and help aid agencies and governments achieve the Millennium Development Goals. We will measure whether industrial jobs lead to greater welfare gains for a higher proportion of workers than an informal sector intervention, even one that invests large amounts of capital per worker.

Second, evidence of the effects of wage income on poor households will inform a host of empirical and theoretical debates in the development literature:

  • What are the effects of formal and informal sector incomes on consumption, risk, stress, health, and politics?
  • How do these effects spill over into the household—to labor supply, agricultural productivity, and child health and education?
  • What is the short and long term impact on child labor in the household?
  • What is the effect of industrial work on political organization and consciousness?

The latter question suggests a third area of research and investigation: an exploration of Smithian and Marxist theories of wage labor and capital.

Principal Researchers

Research activities are supported by the International Growth Centre.

See recent blog posts on this project and the debate.