UC Berkeley

This dissertation is comprised of three essays in Development Economics. Chapter 1 and 3 jointly explore the underlying causes of the labor market frictions faced by firms in the developing countries. Chapter 2 provides an interdisciplinary perspective to understanding the origins of militias in conflict-prone contexts of developing countries.

My first chapter, titled "Search Frictions, Belief Formation, and Firm Hiring in Ethiopia" (coauthored with Sam Wang), examines how search frictions affect firm hiring decisions. We conduct a randomized control trial among 799 private firms with an active job vacancy in Addis Ababa, Ethiopia. A random subset of these firms are provided subsidized access to a new type of employment agency, which provides additional applicants with college diplomas or degrees. In our first main finding, we show that treated firms are 17.5% more likely to fill the vacancy within one month, but the effect is not driven by hiring workers provided by the agency. Instead, having had more interactions with college educated applicants, treated firms become less optimistic about the average productivity of college graduates. Among those firms requesting a college graduate at baseline, treated firms are significantly less likely to hire a college graduate and more likely to hire a non-college educated worker. There are no significant treatment effects on worker turnover, performance, or effort for the worker hired for that vacancy. These findings demonstrate that search frictions can distort firm hiring behavior by affecting learning and belief formation about the labor market, a potentially important but understudied barrier to firm growth in low- and middle-income countries.

My second chapter, titled "Social Origins of Militias: The Extraordinary Rise of 'Outraged Citizens'" (coauthored with Gauthier Marchais, Christian Mastaki Mugaruka, and Raul Sanchez de la Sierra), uses a sharp withdrawal of the state that precipitated the emergence of a prominent militia in the Democratic Republic of the Congo to analyze the role of community in the rise of militias. First, the state withdrawal drastically increased membership into the militia, predominantly driven by various social motivations and, to a much lesser extent, private economic motivations. Second, its extraordinary nature is explained by the response to the drastic rise in insecurity it created, and driven mostly by individuals' intrinsic social motivation to protect their community, but also extrinsic social motivations such as status concerns and social pressure. Third, the response to insecurity is in part explained by elite-driven informal community institutions' response, which engineer extrinsic social motivations and amplify pre-existing intrinsic ones. Our findings suggest that social motivations towards the community play a central role in the rise of militias, and nuance the distinction between economic and noneconomic incentives, showing that a range of social motivations, extrinsic, are engineered by community institutions to promote militia rise; given the later predatory turn of the militia, our findings emphasize how state weakness and social motivations can trigger communities to create security capacity that persists and can be later used opportunistically. Finally, my third chapter (coauthored with Maximiliano Lauletta) examines the underlying causes of turnover in the manufacturing sector. Many developing countries are undergoing a rapid process of industrialization, yet many workers tend to quit early from large-scale manufacturing firms, which constitutes a major challenge for firms to sustain their operation. We study three potential causes of high turnover rates in the context of a flagship industrial park in Ethiopia: misperceptions of the job aspects in the manufacturing firms, temporary income shock, and sorting based on workers' productivity types. To understand the effect of misperceptions, we collect detailed measures of misperceptions from 1,203 new workers regarding 14 quantifiable job aspects, combined with the administrative records of turnover. We further conduct an intervention where we provide accurate information on the key job aspects of career progression and examine how misperceptions causally affects workers' turnover decisions. Correlational and causal evidence suggest that misperceptions can only explain a small proportion of early turnover rates (0.3--5% of total variation). We further examine the heterogeneous treatment effect to provide suggestive evidence for the other two causes. Among treated workers with high-level of misperceptions, workers more subject to temporary income shock do not quit more, suggesting temporary income shock may not be able to explain the high turnover rates. However, workers with high productivity type, proxied by high educational attainment and high dexterity level, are less likely to quit. Our results suggest that turnover may reflect an equilibrium outcome where workers with low productivity choose to quit when they realize their productivity type, which potentially benefits firms if the productivity premium of the workers who stay may compensate the productivity loss from those who quit.