Does risk matter? The case of wage-labour allocation by owner-cultivators

Abstract

This study analyses the impact of revenue risk on the hiring-out behaviour of owner-cultivators. Since hiring-out is not certain, labour market risk is also allowed for. A large sample of owner-cultivators residing in semi-arid regions in India, and hence subject to high production and labour market risks, is used for this purpose. It is found that, possibly because production risks carry forward into the local labour market, households are unable to use the labour market as a hedge against production risk. We also find that labour force participation is positively affected by increases in the real wage rate, a result that is contrary to the findings of earlier studies using data from less developed agriculture. Several other insights also result.