Diversification of Employment and Earnings by Rural Households in West Bengal

Abstract

It is now a recognised fact that farming on its own does not provide a sufficient means of survival to a majority of rural households in most of the developing countries. Accordingly, most of the rural households depend on a diverse portfolio of activities and income sources, alongside crop and livestock production. Such a tendency on the part of rural households has been termed as diversification. Several recent studies have noted that the maintenance and continuous adaptation to a diverse portfolio of activities by the rural households has been a distinguishing feature of survival strategies adopted, in particular, by the poorer households in the developing countries (Ellis, 1998, 2000; Barrett et al., 2001; Reardon et al., 2001; Lanjouw and Lanjouw, 2001; Ferrington et al., 2006). However, scholars have been far from unanimous as regards the causes and consequences of diversification. While some scholars view diversification as a deliberate household strategy, others consider it an involuntary response to crisis. As the rural households’ employment and incomes are subject to seasonality, there is always likely to be a mismatch between uneven income streams and continuous consumption requirements which leads to ‘labour smoothening’ and ‘consumption smoothening’ problems. Diversification helps to mitigate these adverse effects by utilising labour and generating alternative sources of income in off-peak periods. Another beneficial effect of diversification is that it reduces the risk of income failure by spreading risk across activities that confront different risk profiles. Further, as diversification leads to higher household incomes than farming alone, it is very likely to reduce both the extent and depth of poverty. However, there might as well be an increase in rural income inequality with diversification (Lanjouw and Stern, 1998). This is particularly so when there exists substantial entry barriers (owing to deficiency of skill, education, social positioning, asset ownership, etc.) which forces the poorer households to get absorbed in low return casual jobs in the