PDF_logo The Impact of Microcredit on Rural Labour Market in Bangladesh

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The Impact of Microcredit on Rural Labour Market in Bangladesh

Paper No:37

Author:S. R. Osmani



This paper assesses the impact of microcredit on the rural labour market in Bangladesh using data from a nationally representative large-scale survey. Two aspects of the impact on labour market are investigated – viz., employment at the household level and wage rate at the village level. With regard to the employment effect, the paper adopts a methodology that is capable of decomposing the effect into two parts – one representing the decision of a household to participate in a particular type of employment and the other representing the decision about the amount of employment to be undertaken. The econometrics of the Hurdle model is used for this purpose. The paper looked at both total level of employment and the pattern of employment (i.e., sector and mode of employment) of borrowers, and disaggregated the employment impact by gender and by ‘productive’ and ‘non-productive’ users of microcredit. In addition, the paper also considered the possible spill-over effect on non-borrowers. The results show that microcredit has a strong positive effect on the employment level of borrowing households. An average rural household gains 53 person days of employment in a year as a result of access to microcredit, which amounts to about 19 per cent increase compared to what would obtain without
microcredit. Males gain more than females in absolute terms but females gain proportionately more. Both productive and non-productive users of microcredit gain employment but the former gain more. The study did not find any evidence that the increase in employment enjoyed by microcredit borrowers occurs at the expense of non-borrowers. Apart from raising employment at the household level, microcredit also exerts a significant positive effect on the wage rate at the village level; a 10 per cent increase in the spread of microcredit in a village would raise the wage rate by 4.6 per cent.

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