Labor tying

We study labor-tying in a competitive agricultural economy. The co-existence of seasonal fluctuations in income and imperfect credit markets suggests that tied contracts should dominate casual labor markets. However, empirical observation from India suggests that this is far from being the case, and indeed, that there is a declining trend in labor tying. We consider a model that permits deviations ex-post from mutually agreed implicit contracts. In equilibrium, casual labor markets are always active despite the presence of seasonality, and a variety of implications are derived that link economic growth, changing information flows, and the decline of labor tying over time.