This week I want to talk about some interesting work that Gharad Bryan, Shyamal Chowdhury and Mushfiq Mobarak are doing in Bangladesh (policy note and presentation are online, paper coming shortly).
So the story goes like this. There is a region in north-western Bangladesh which is called Rangpur. In this poor region, things get worse after planting and before harvest (Sept-Nov) – rice prices go up, income falls (wages go down and there aren’t a lot of jobs) and expenditure falls. This causes a seasonal famine.
Now, there is money to be made elsewhere in Bangladesh during this time of the year, but only about 1/3 of the people are going elsewhere. So what Bryan and colleagues do is incentivize folks to migrate. They have three treatment arms: one group got information only on the likelihood of getting a job and the wages at different destinations, a second group got the information plus cash roughly equivalent to bus fare to the nearby towns (about $8 plus $3 if they reported at the destination) and the last group got information plus a zero interest loan for the same amount.
So what happened? The cash and credit had the same effect – six months after the incentives, these folks had migrated at the rate of 58%, compared to 36% for those without an incentive. The information? No effect.
And migration pays off. Although about 20% of migrants don’t find a job, the average migrant earns about $110 during the lean season and sends more than half of that back home. This translates into a boost for consumption of around 30-35%. One interesting wrinkle: the incentivized migrants were making (and remitting) less than the non-incentivized migrants. Despite this the folks getting the incentive were more likely to migrate the next year, even without the incentive – their migration rate was 47% against 37% for the non-incentivized
So what’s the story? This could be consistent with liquidity constraints, but that’s a bit hard to believe – the transfer is very low relative to the returns and, moreover, there is enough variation in the expenditure and consumption of these households that it would be hard to believe they couldn’t come up with the cash. Bryan, et. al’s preferred story: this is a migration-poverty trap where people don’t migrate because they are afraid of the consequences if they go. Indeed, the folks who are “induced” to migrate by this transfer are those closer to subsistence, those with lower weaker social networks in the destination community, and those with fewer job leads.
So this result shows us that a small financial push can have big dividends where information alone won’t do the job. It also broadens the scope for thinking about microfinance or small scale insurance in terms of labor mobility rather than just for starting businesses. Of course, if we think about taking it to scale we run into another problem – what would happen to labor markets if this were really widespread?