Increasing Share of Agriculture in Employment in the Time of Crisis: Puzzle or Not?

Abstract

In the first quarter of 2008, along with the beginning of the crisis, the employment share of agriculture in Turkey deviated from its long-run trend and started to rise. Both the timing and the direction of the change caused a public debate seeking an explanation of this phenomenon. Getting attention in the debate is the fact that labor productivity in agriculture has been declining since that quarter. How much of the increase in agricultural employment can be explained by the secular changes in its productivity? To answer this question, we use a multi-sector general equilibrium model in which employment share in agriculture is determined solely by the subsistence constraint and labor productivity in agriculture, where sectoral productivity growth rates are treated as exogenous. The model accounts for more than 90 percent of the decline in the agricultural employment share between 2000:Q2 and 2010:Q3. The model is also able to generate the increase in agricultural employment since 2008:Q1, although it slightly overpredicts the agricultural employment share. The model also predicts the sectoral allocations of labor in non-agricultural activities during the sample period. A detailed analysis of the driving forces of the growth in agricultural productivity is needed, since it lies at the heart of the secular changes in employment shares in Turkey.