Memory, Information, and Labor Supply

As youth in low-income countries move towards urban areas in search of off-farm jobs, they often enter the urban informal labor markets (Beegle and Bundervoet, 2019), either as self-employed or as waged daily laborers. Waged casual jobs are typically short and unpredictable in nature, requiring workers to constantly use the information available to gauge the state of labor demand (e.g. job finding probability, persistency of shocks) to optimally choose one’s labor supply. This forward-looking behavior requires workers updating based on their own past labor market experience. This assumes, therefore, that workers’ recall of the past is unbiased. In scoping work carried out in India among daily laborers, researchers document that that workers have an over-optimistic recall of their past labor supply and work: in incentivized recalls of their past labor supply, they recall on average having supplied labor 21% --and worked 15%-- more than they actually did. This finding could have meaningful consequences: if workers are using the wrong information set, they may make incorrect inferences about important labor market variables (e.g. attributing unemployment during a week to lack of labor demand, rather than their own labor supply). Therefore, the premise of this project is that there may be meaningful consequences for labor supply just by making workers notice particular aspects of their own behavior. Do workers use available information optimally? Is there a causal effect of biased recall on future labor supply? Second, which (psychological) mechanisms generate the bias in the first place? In particular, researchers consider inattention, and deliberate information avoidance, due –for instance—to motivated reasoning. Third, which interventions can be used to correct this bias, and how do they impact labor supply and search behavior?