The Demand for Hired Labor in Rural Madagascar

This paper estimates structural labor demand equations separately for farm and non-farm enterprises in rural Madagascar. We adapt recent labor supply estimation methods that address the general unobservability of both wage rates – due to widespread self-employment– and employers' non-wage costs of hiring workers in order to fill a significant void in the existing literature. Labor demand in rural Madagascar appears strongly increasing in enterprise owners' educational attainment, in enterprises' capital stock, and in community level public goods. Furthermore, labor demand appears wage inelastic, especially in the non-farm sector where government labor market policies, such as minimum wage laws, are more commonly enforced