Asymmetric non-separation and rural labor markets

Abstract

This paper develops and implements a test that provides insight into the state of rural labor markets. The test is based on a theoretical link between a shortage or surplus in the labor market and asymmetric responses to changes in household composition. We develop auxiliary tests to distinguish other market imperfections from labor market imperfections, and provide evidence that most changes in household composition are exogenous to local labor market conditions. We implement the test using data from Ethiopia, Malawi, Tanzania, and Uganda. The overall pattern is one of excess labor supply in rural areas, with heterogeneity across cultivation phases, genders, and agro-ecological zones. Surplus labor is most evident during low-intensity cultivation phases. In Ethiopia, there is suggestive evidence that credit constraints create a de facto labor shortage for poorer households. There is also evidence of partial gender segmentation in rural labor markets.