ECONOMIC GROWTH CENTER

                       YALE UNIVERSITY

                       P.O. Box 208269
                     27 Hillhouse Avenue
                   New Haven, CT 06520-8269





               CENTER DISCUSSION PAPER NO. 790




       THE EFFECTS OF TRANSACTION COSTS ON LABOR MARKET
                 PARTICIPATION AND EARNINGS:
            EVIDENCE FROM RURAL PHILIPPINE MARKETS




                     Leonardo A. Lanzona
                 Ateneo de Manila University


                      Robert E. Evenson
                       Yale University


                         October 1997





Note: Center Discussion Papers are preliminary materials circulated to
      stimulate discussion and critical comments. Dr. Lanzona was a
      Postdoctoral Fellow at the Economic Growth Center, Yale University
      and is an Assistant Professor at Ateneo de Manila University,
      Philippines.

      Financial support was provided by The Rockefeller Foundation.


Comments welcome.  Not for quotation.
 Working Draft                                          Oct. 15, 1997



 The Effects of Transaction Costs on Labor Market Participation and Earnings:
               Evidence from Rural Philippine Markets



                     Leonardo A. Lanzona
                             and
                     Robert E. Evenson*


                            Abstract
The paper aims to measure transaction costs and its effects on labor market
participation and on wage earnings.  The observed differences between
between buying and selling prices of rice across households are used to
calculate transaction costs indices for villages which are incorporated into
the standard labor market participation and Mincer wage equations.  The
estimates indicate that transaction costs may be a source of the income
differentials between (a) the landed and the landless, (b) the rural and the
urban areas, and (c) the males and the females.  Furthermore, biases can
noted in the regression coefficients of estimates that do not control
for transaction costs.


KEY WORDS:  Transaction Costs, Labor Market Participation, Philippines










*  Assistant Professor, Ateneo de Manila University, and Professor, Yale
University.  All comments and questions should be addressed to the former,
Economics Department, Ateneo de Manila University, P.O. Box 154, Manila,
Philippines.