The Social Tax : Redistributive Pressure and Labor Supply
In low-income communities, pressure to share income with others may disincentivize work, distorting labor supply. This paper documents that across countries, social groups that undertake more interpersonal transfers work fewer hours. Using a field experiment, the study enabled piece-rate factory workers in Côte d'Ivoire to shield income using blocked savings accounts over 3-9 months. Workers could only deposit earnings increases, relative to baseline, mitigating income effects on labor supply. The study varied whether the offered account was private or known to the worker's network, altering the likelihood of transfer requests against saved income. When accounts were private, take-up was substantively higher (60% vs. 14%). Offering private accounts sharply increased labor supply—raising work attendance by 10% and earnings by 11%. Outgoing transfers did not decline, indicating no loss in redistribution. The estimates imply a 9–14% social tax rate. The welfare benefits of informal redistribution may come at a cost, depressing labor supply and productivity.
| Main Authors: | , , , |
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| Format: | Working Paper biblioteca |
| Language: | English English |
| Published: |
World Bank, Washington, DC
2022-08
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| Subjects: | INTERPERSONAL TRANSFERS, EARNINGS, INCENTIVES TO WORK, DISINCENTIVE TO EMPLOYMENT, PRODUCTIVITY, LABOR MARKET, |
| Online Access: | http://documents.worldbank.org/curated/en/099742308302211506/IDU0b3c585250f459043b40937603d0554cfbe07 http://hdl.handle.net/10986/38459 |
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| Summary: | In low-income communities, pressure
to share income with others may disincentivize work,
distorting labor supply. This paper documents that across
countries, social groups that undertake more interpersonal
transfers work fewer hours. Using a field experiment, the
study enabled piece-rate factory workers in Côte
d'Ivoire to shield income using blocked savings
accounts over 3-9 months. Workers could only deposit
earnings increases, relative to baseline, mitigating income
effects on labor supply. The study varied whether the
offered account was private or known to the worker's
network, altering the likelihood of transfer requests
against saved income. When accounts were private, take-up
was substantively higher (60% vs. 14%). Offering private
accounts sharply increased labor supply—raising work
attendance by 10% and earnings by 11%. Outgoing transfers
did not decline, indicating no loss in redistribution. The
estimates imply a 9–14% social tax rate. The welfare
benefits of informal redistribution may come at a cost,
depressing labor supply and productivity. |
|---|