Throughout history, many types of labor arrangement have involved the use of coercion the threat or use of force to compel workers to enter into an employment relationship. Slavery was the most common way of organizing labor in a host of ancient civilizations, and was also very prominent in plantation economies throughout the Americas. Other forms of forced labor, such as debt peonage and the state-sanctioned forced recruitment of laborers, also played an important role in the hacienda system that emerged in Latin America during the colonial and post-colonial periods. Episodes of coercion are not only confined to the historical record: they have persisted across both industrialized and developing countries throughout the twentieth century (Andrees and Belser 2009).
While the conditions determining the prevalence of coercion have been studied extensively, in particular the primary role played by the forces of international trade, much less is known about the consequences of coercion for economic development. Scholars have argued that coercive labor institutions could lead to socially inefficient outcomes as they involve a costly transfer of resources away from workers (e.g., Engerman and Sokoloff 1997; Coatsworth 1999; Conning 2004; Acemoglu and Wolitzky 2010). Consistent with these arguments, empirical studies have found a negative relationship between the historical prevalence of slave use and current economic development. In contrast, less empirical analysis has been devoted to identifying the mechanisms through which labor coercion might impact economic development, such as human capital accumulation, arguably one of the most prominent determinants of development in the modern period (e.g., Galor 2005).
Our paper fills this gap by providing empirical evidence regarding the consequence of labor coercion for individuals’ human capital accumulation decisions in the presence of increasing commodity trade. To guide our empirical analysis, we first develop a simple general equilibrium model of public provision of education, coercion of unskilled workers, and workers’ endogenous human capital accumulation decisions in a small open economy. In the absence of coercion, if a boom in an unskilled labor-intensive commodity decreases the skilled labor wage premium and increases government tax revenue, the equilibrium amount of educational attainment will be determined by government revenue driven supply and skill premium driven demand factors.
We then introduce a coercive regime in which an elite-controlled government reallocates resources away from educational public goods and into the enforcement of coercive labor regulations, allowing landowners to pay below-market wages to unskilled workers. In such circumstances, we show that labor market coercion dampens the effect of the commodity boom on unskilled laborers’ wages, effectively increasing the relative return to education and inducing workers to accumulate human capital in the face of the rising price of the commodity.
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Labor Coercion and the Accumulation of Human Capital
