Productivity Response in Contract Change

DRI Working Paper No. 98
By Debraj Ray, Rajshri Jayaraman, and Francis de Vericourt

We study a contract change for tea pluckers on an Indian plantation, obeying a government notification stipulating a new minimum wage. Baseline wages were hiked, and marginal piece rates lowered. Yet, in the following month, output increased by 20–80%. This response contradicts the standard model and several variants, is only partly explicable by greater supervision, and appears to be “behavioral.” Yet in subsequent months, the increase is comprehensively reversed. While not an unequivocal indictment of “behavioral” models, these findings suggest that non-standard responses may be ephemeral, and should ideally be tracked over an extended period of time.