I just finished an intense period of training and evaluation for my project staff, and made final selections for my team of supervisors and enumerators. They are a very talented group, and I’m quite happy with my final team, but getting here was a pretty stressful journey. One reason for the stress is that I used a fairly standard approach of starting with more people than I needed and constantly evaluating them over the first couple of weeks before making cuts.
Another was deciding what to pay people. The Malawi Kwacha was devalued earlier this year, altering the official exchange rate and allegedly changing many prices. In actuality, though, most imports had already been bought nigh-exclusively on the black market, or using foreign currency bought at black market rates, for quite some time, so that the devaluation actually lowered some prices. For example, fuel was almost all black-market before the devaluation, and the going rate was 500 kwacha or more; now it’s at 485 kwacha, and until three days ago it was 441. I consulted extensively with other researchers on how to adjust my pay and in the end I kept it flat relative to what I paid last year. This puts me at a slightly lower pay scale than most local research organizations, which to my thinking is justified due to my lower budget and the fact that I’m selecting people with lower qualifications and less experience (but hope to move them up if they do well).
This means that my enumerators, for example, earn around ten times what they could otherwise make doing piecework labor, assuming such jobs are available. Some people I’ve talked to have argued that foreign researchers are morally obligated to pay even more than that, since the pay for foreign researchers’ Malawian staff is really low relative to our own incomes. On the one hand, I sympathize with that argument – I’m a development economist for a reason! – but on the other, it doesn’t strike me as an unmitigated good to set a really high pay floor for my research team. High incomes are awesome, and you’ll never hear me say otherwise, but high wages have other consequences besides increasing my workers’ incomes.
One such unintended consequence is similar to what you’d see with a binding minimum wage in a competitive market: the more I pay, the fewer workers I can hire. From the perspective of benefits to Malawians, is it better to hire one worker at MK 50,000 per day, or 50 and MK 1,000 per day? There’s actually an answer, at least from an economist’s viewpoint – the latter almost surely maximizes social welfare, since the marginal utility of money is decreasing. If you have no income at all you will likely die, but after you have 49,000 kwacha on a given day, another 1,000 doesn’t matter too much.
Another consequence is that there is a strong tendency for the very best talent in the country to gravitate toward working as a researcher. My UM colleague (and co-advisee under Rebecca Thornton) Susan Godlonton has done some descriptive work on this as background to her research on labor markets here: fully one third of people at the high end of the skill distribution in urban Malawi have worked on research projects. That’s great for the specific Malawians in question – they’re seeking those jobs since doing so maximizes their own well-being – but again, less obviously good for society as a whole. As I noted elsewhere, tons of super-smart, super-educated people who might otherwise start their own businesses and eventually employ their less-educated countrymen are instead trying to get jobs doing stuff like driving cars for the UN or conducting surveys. The more wages for research rise, the stronger this tendency is likely to be.
The other aspect of my choice is a deliberation on how much I’m actually paying my staff, in real terms. The nominal exchange rate is probably misleading, since a dollar goes farther here than it does in the US. But I’m dubious that the official purchasing-power adjustments are right either. I’m going to come back to this in the near future, and discuss how we should think about the value of pay in a developing country.