Rural Non-Farm Employment, Income Distribution and Poverty: Micro Level Evidence from Punjab

Abstract

The non-farm sector is fast emerging as an important component of developing rural economies, with an increasing number of rural workers seeking their livelihoods in this sector. The arguments for paying attention to this sector are gaining ground due to its perceived potential for absorbing a growing rural labour force, slowing down of rural-urban migration contributing to national income growth and promoting a more equitable distribution of income (Lanjouw and Lanjouw, 2001). There is increasing evidence that majority of the rural households rely on multiple economic activities with almost 60 per cent of the rural household income in South Asia coming from non-farm sources (Ellis, 1999). The rural households benefit even from low non-farm earnings during the distress situations of low or fluctuating seasonal as well as long-term unemployment in agriculture. The rural non-farm (RNF) sector can interact favourably to alleviate rural poverty with a greater likelihood of the poor households employed in this sector (Lanjouw, 1999; Lanjouw and Shariff, 2004). This sector also offers some means of economic security to women who are otherwise not able to participate in the agricultural wage labour market (Adams, 2000). Non-farm income, in a broader sense tends to decrease rural income inequality as compared to agricultural income, which usually induces income inequality due to the skewed distribution of agricultural land amongst the rural households (Adams and He, 1995). RNF sector provides a backstop source of income to the poor whose options in agriculture have been exhausted and provides them with a safety net to escape from sliding deeper into poverty (Lanjouw, 2001). A decline in profitability as well as in the labour absorption capacity of agriculture also forces one to look into other options of rural development than in agriculture. The farm sector in Punjab witnessed a stupendous growth of more than five per cent per annum till the early 1990s, after which, a significant slowdown in agricultural productivity, a rise in the cost of cultivation and a decline in farm profitability was witnessed. While farm income could only grow marginally by 1.21