Labor Contracts, Incentives, and Food Security in Rural Myanmar

Abstract:
"This paper develops an agency model of contract choice in the hiring of labor and then uses the model to estimate the determinants of contract choice in rural Myanmar. As a salient feature relevant for the agricultural sector in a low income country such as Myanmar, the agency model incorporates considerations of food security and incentive effects. It is shown that when, possibly due to poverty, food considerations are important for employees, employers will prefer a labor contract with wages paid in kind (food) to one with wages paid in cash. At the same time, when output is responsive to workers' effort and labor monitoring is costly, employers will prefer a contract with piecerate
wages to one with hourly wages. The case of sharecropping can be understood as a combination of the two: a labor contract with piecerate
wages paid in kind. The predictions of the theoretical model are tested using a crosssection
dataset collected in rural Myanmar through a sample household survey which was conducted in 2001 and covers diverse agroecological
environments. The estimation results are consistent with the theoretical predictions: wages are more likely to be paid in kind when the share of staple food in workers' budget is higher and the farmland on which they produce food themselves is smaller; piecerate
wages are more likely to be adopted when work effort is more difficult to monitor and the farming operation requires quick completion...
JEL classification codes: J33, Q12, O12.
Keywords: contract, incentive, selection, food security, Myanmar.