Causes and Consequences of Labor Utilization: Evidence from Ugan dan Firms
Abstract:
Labor idleness is pervasive in small firms in developing countries, yet its causes and consequences remain poorly understood. Using a novel five-year panel of over 1,000 firms in Uganda, we document that firms face substantia l and hard-to-predict demand, that capital and laboradjustment costs are la rge, and that labor utilization is low. Firms with more uncertain demand ex hibit lower utilization and invest less inon-the-job training. Guided by th ese facts, we develop a model of firm input and training choices under dema nd uncertainty. A key mechanism is that training is a fixed investment paid upfront, while workers are paid piece-rates only when utilized, so higher demand uncertainty lowers expectedutilization and reduces the returns to tr aining. We estimate the model, identifying key parameters via a field exper iment offering firms a wage subsidy to recruit and train an additional work er. Counterfactual simulations show that reducing demand uncertainty raises hiring and trainingnearly as much as lowering training costs directly, and that the effectiveness of typical development policies to stimulate firm s ize,productivity and growth - such as capital grants, management training, and market access interventions - all depend critically on the uncertainty ofdemand firms face. Our findings highlight a novel demand-side mechanism l imiting human capital accumulation, firm size, and the effectiveness offirm -targeted policies in low-income settings.
DTSTAMP:20260610T015947Z DTSTART:20260619T130000Z DTEND:20260619T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR