Labor Responses to Trade Liberalization in a Rural Economy

Abstract

How do labor markets in a low-income country with a predominantly rural economy respond to trade liberalization? This study investigates changes in labor participation, market wages and annual hours worked by rural adults in response to higher rice prices attributed to national and international market integration of Vietnam’s rice sector between 1993 and 1998. Over this interval, market and trade reforms brought about a significant increase in the real price of rice, rising over 30 percent on average. I find that increases in real producer rice prices led to higher real agriculture wages in Southern Vietnam primarily benefiting households with little or no land. In reacting to higher rice prices, rural households in Northern Vietnam reduced their participation in the agriculture sector and increased their involvement in the non-agriculture sector while households in the South raised their participation in own-farm cultivation. The findings show that the response of labor supplied to price variations either for wages or household production, varies by region and by gender and does not unambiguously point to a shift in time away from household work towards wage employment with the expansion of markets.