Tied Labour, Savings and Rural Labour Market Wages: Evidence from a Framed Field Experiment

How does the introduction of tied labour or a saving product affect labour market decisions and wages in rural agricultural labour markets? We develop a theoretical model of labour tying that incorporates diminishing marginal returns to consumption and inequality (behindness) aversion in the context of a rural agricultural labour market with seasonally fluctuating demand for labour, and test model predictions using a framed field experiment (modified ultimatum game) in rural Uganda. Our main findings are that (1) wages fluctuate with productivity, (2) access to tied contracts decreases wages for casual labour and (3) access to a saving technology does not improve wages for tied labour. Consistent with model predictions and earlier theory, we empirically find that income for workers goes down (and income for landlords goes up) if an institutional innovation enables consumption smoothing by workers (tied contracts or a saving technology).