Nonfarm Income, Inequality, and Poverty in Rural Egypt and Jordan

Abstract

Nonfarm income has a greater impact on poverty and inequality in Egypt than in Jordan. In rural Egypt the poor receive almost 60 percent of their income from nonfarm sources, while in rural Jordan they receive less than 20 percent. The reason for this difference is land: in rural Egypt, agricultural land is very productive, but access is quite limited, and so the poor are pushed into nonfarm work; while in rural Jordan, land is not very productive, and access is not highly prized. In both countries the best way to reduce poverty and inequality might be to focus on nonfarm unskilled labor. The rural economy of developing countries has long been regarded as synonymous with agriculture but in recent years this view has begun to change. Such diverse activities as government, commerce, and services are now seen as providing most income in rural households. Applying decomposition analysis to two new nationally representative sets of household data from Egypt and Jordan, Adams examines how different sources of income - including nonfarm income - affect inequality in rural income. He concludes: - Nonfarm income has different impacts on poverty and inequality in the two countries. In Egypt the poor (those in the lowest quintile) receive almost 60 percent of their per capita income from nonfarm income. In Jordan the poor receive less than 20 percent of their income from nonfarm income. So nonfarm income decreases inequality in Egypt and increases it in Jordan. - Access to land accounts for this difference between the two countries. In Egypt the cultivated land base is totally irrigated and very highly productive. Egypt's large rural population seeks access to land but because the land-to-people ratio is so unfavorable, only a minority of rural inhabitants actually own land. The rest - especially the poor - are forced to seek work in the nonfarm sector. By contrast, only 30 percent of Jordan's cultivated land base is irrigated and crop yields are low. So Jordan's rural population does not press for access to land because the attractive economic rates of return are found in the nonfarm sector. Unlike Egypt's rich, rural Jordan's rich earn less than 10 percent of their total per capita income from agriculture and more than 55 percent of it from nonfarm sources. - The poor in both countries depend heavily on government employment to decrease inequality. Government wages provide 43 percent of nonfarm income for Egypt's rural poor and 60 percent of Jordan's. But since both governments already employ far more workers than they can possibly use, advocating increased government employment to reduce inequality would not be wise policy advice. From a policy standpoint, it would be better to reduce income inequality by focusing on nonfarm unskilled labor (for example, in construction, brick-making, and ditch-digging), an important income source. - In Egypt nonfarm income decreases inequality because inadequate access to land pushes poorer households out of agriculture and into the nonfarm sector. Although agricultural income is positively associated with land ownership in rural Egypt, that ownership is unevenly distributed in favor of the rich, so nonfarm income is not linked to land ownership and is thus more important to the rural poor. This paper - a product of the Poverty Division, Poverty Reduction and Economic Management Network - is part of a larger effort in the network to identify the sources of poverty and income inequality in the developing world. The author may be contacted at radams@worldbank.org.