How complete are labor markets in sub - Saharan Africa ?

We develop and implement new tests for the completeness of rural labor markets. Our approach builds on the seminal work of Benjamin (1992) and requires panel data with changes in household labor endowments over time. We show how the possibility of asymmetric responses to increases and decreases in labor endowments leads to tests of necessary conditions for a shortage or surplus in the labor market. The tests are based on strictly exogenous changes in the household labor endowment and allow for variation in labor market conditions across phases of the cultivation cycle. We implement the test using nationally representative panel data from Ethiopia, Malawi, Tanzania, and Uganda. Results differ across countries. In Ethiopia there is strong evidence of a labor shortage. In Malawi, the evidence is strongly in favor of a labor surplus. For Tanzania the results suggest a labor surplus at all times other than planting, when the pattern is less clear. In Uganda there is no evidence of non-separation in the panel, and therefore no labor market shortcoming. The paper shows that labor markets are not efficiently allocating labor in the study economies, with the possible exception of Uganda. But the underlying labor market imperfection varies across settings, highlighting the importance of tailoring policies to the circumstances of each country. ∗We thank the Institute for the Study of Labor (IZA) and the UK Department for International Development for funding through the GLM-LIC program. Preliminary work on this project took place as part of the Myths and Facts in African Agriculture project of the World Bank and African Development Bank. For comments and helpful discussions we are grateful to Chris Barrett, Taryn Dinkelman, Dave Donaldson, Andrew Foster, Louise Fox, Markus Goldstein, Doug Gollin, Rachel Heath, Joe Kaboski, Supreet Kaur, David Lam, Simone Schaner, Tavneet Suri, and seminar participants at the Pacific Development Conference and CSAE Conference in Oxford. We thank Joshua Merfeld, Reuben Mutegi, and Audrey Royston for excellent research assistance. All errors are the responsibility of the authors. †University of Washington, Evans School of Public Affairs. Email: [email protected]. ‡University of Alabama. Email: [email protected] §University of Nairobi, Department of Economics. Email: [email protected].