Worker Absences and Demand for Flexible Contracts

Worker absenteeism and high turnover remain common problems in developing labor markets, even while the unemployment rate is high (Allen 1981, Leigh 1983, Benavides et al. 2000). In India, the absence rate stands at 8% of worker-days among permanent manufacturing employees, and a majority of unskilled workers continue to be employed in informal casual labor. The paper presented in this Mannheim Applied Seminar hypothesizes that worker demand for flexibility affects labor supply decisions, both in terms of absence and selection into informal work arrangements.

The authors test for the existence of a demand for flexible work among unskilled casual laborers in Odisha, India, and investigate the underlying motivations. They use an incentive-compatible choice experiment, which elicits preferences over pairs of contracts which vary in levels of flexibility, attendance bonus, and distance to local network. This allows the authors to empirically document workers’ willingness to pay for flexibility in terms of forgone wage earnings, when they are proximate (or not) to the network.

They combine this with attendance data from random implementation of contracts and collect detailed survey data on the causes of absences, social network and practices, as well as risk and time preferences. The authors plan to: 1) estimate the share of workers who have demand for flexibility that exceeds what is permitted in a typical formal contract; 2) distinguish the main reasons why workers demand flexibility, including the role of social duties; and 3) examine consequences for contract selection and earnings.