Non-farm Wage Research Articles

Determinants of Non-farm Income Diversification in Developed Villages of Bangladesh

Problem statement: Though the Non-Farm Sector (NFS) has been prioritized in the national policy documents, empirical evidences based on the broader definition of the sector seem to be insufficient about its role both in income diversification and income distribution especially in segmented area of rural Bangladesh. Approach: We use income inequality Gini decomposition method for exploring the role of Non-Farm Incomes (NFIs) and censored Tobit regression for estimating determinants of NFI diversification. We use original data collected from a field survey on individual participation in farm and Non-Farm Activities (NFAs), labor time and household incomes of 214 randomly selected households in four villages of a typical developed rural area, namely, Comilla Sadar Upazila (Sub-district), for the year 2005-06. Results: The NFAs are undoubtedly no longer "marginal" in the case study villages. In addition to supporting the fact that despite having the greater role of the NFS in income diversification and increasing household income, the NFI components do very little or nothing to reduce income inequality, our Gini-decomposition results suggest that further unevenly access to local high return non-farm self-employments and out-country remittance employments would actually aggravate the income distribution. In addition to local NFS, our econometric results give us several important insights for non-local remittance (out-country) and other incomes (transfers): Lower extent of local high-return Household Non-Farm Enterprises (HNFEs) is a reality and landholding is crucially important for financing such HNFEs. For high-return non-farm wage employments and out-country remittance incomes, where the low-income households have limited access, education is particularly important. Participation of female in direct economic activities is negligible. Social capital and local institutions are not significantly active in promoting either local or non-local NFS. Conclusion/recommendations: The future NFS development strategy, thus, should be aimed at promoting high-return HNFEs and creating out-country remittance employment opportunities for the low income households, making local institutions more effective, and increasing female participation in direct economic activities.

Literacy Sharing, Assortative Mating, or What? Labour Market Advantages and Proximate Illiteracy Revisited

This paper explores the relationship between household literacy and the labour market outcomes of illiterate household members which Basu, Narayan and Ravallion (2002) report using Household Income and Expenditure data from Bangladesh. BNR attribute a considerable wage premium for proximate-illiterate women in off-farm employment to labour productivity gains from intra-household literacy sharing. This wage premium also suggests that women may be more efficient recipients of literacy externalities than men. We propose that any such relationship might not be due to higher labour productivity but may have other explanations such as systematically different and unobserved attributes of illiterate females married into literate households. We also pay attention to the negative selection of illiterate females into non-farm wage employment, which contrary to received wisdom suggests that household literacy may not be unambiguously progressive for females. We propose that the widely reported finding that female literacy impacts more positively than male literacy on child wellbeing may not extend into similar effects in other realms of household activities where males may be more efficient transmitters of literacy externalities. Using more recent Bangladesh and similar Indian data we find somewhat different results for household literacy externalities on non-farm wage employment of household illiterates, and also show that any such effects are conditioned on the social identity of the individuals, their geographic location and their sector of employment. We caution against drawing conclusions from one finding using one data set apparently ignoring contrary findings, where that finding is congruent with fashionable development views, such as the advantages of females as generators of development.

The impact of increasing farm size and mechanization on rural income and rice production in Zhejiang province, China

Economic growth in China’s agricultural sector lags behind growth in industry and services, creating an ever widening rural–urban income gap. Development of the non-agricultural sectors offers new opportunities for farmers in China’s more advanced provinces such as Zhejiang. Increased income in the urban sector creates markets for new products, and migrating farmers rent their land to those staying. Until now, the prevailing rice-based systems have been managed mainly using manual labour and animal traction, but the larger farms resulting from migration may facilitate, or even require mechanization. In this study, we use a simulation model of the farm household to analyse the effects of increasing farm size and the transition from rice to vegetable production, while also studying the effects of mechanization. Our results show that at the present scale of farming, the dual government objectives of increasing rural incomes and increasing rice production are clearly conflicting. Farmers can generate incomes comparable to non-farm wages, but only when they switch completely to production of more remunerative crops, such as vegetables. At larger farm sizes, however, labour constraints inhibit farmers from specialization in non-rice crops, and rising per capita incomes and increasing rice production go hand in hand. Mechanization is necessary to allow substantial increases in farm size.

Nonfarm Employment and Poverty Alleviation of Rural Farm Households in Honduras

This paper analyzes the role of nonfarm income of rural farm households in Honduras. It uses the national income and expenditure survey from 1993 to 1994. Income from nonfarm wage and self-employment represents 16–25% of farm household income and is especially important for middle and higher income strata. Nonfarm wage labor is geographically concentrated in small rural towns and in the industrial free zones located in the Northern region, while self-employment is particularly developed in the Southern region. Access to nonfarm wage employment is confined to educated individuals that belong to large households, while female members of wealthier households are mainly involved in self-employment. Food security is strongly enhanced through the engagement in nonfarm activities. Moreover, nonfarm income enables farmers to purchase external inputs for improving yields and labor productivity. Suitable policies to enhance nonfarm employment include education, training, and technical assistance to reduce labor intensity in agricultural production, as well as public investment and credit services to improve access to nonfarm activities.

Rural Nonfarm Employment and Incomes in Latin America: Overview and Policy Implications

Rural nonfarm employment (RNFE) and incomes (RNFI) are crucial to Latin American rural households. The 11 rural household income studies in this volume, reviewed in this paper, use 1990s data and show that RNFI averages 40% of rural incomes. RNFI and RNFE have grown quickly over the past three decades. The review of evidence provided some surprising departures from traditional images of nonfarm activities of Latin American rural households. In terms of shares of rural incomes: (1) nonfarm wage incomes exceed self-employment incomes; (2) RNFI far exceeds farm wage incomes; (3) local RNFI far exceeds migration incomes; (4) Service-sector RNFI far exceeds manufactures RNFI. These findings suggest the need for more development program attention to wage employment in the service sector, versus the traditional focus on small enterprise manufactures. Moreover, poor households and zones tend to have higher shares in their incomes but lower absolute levels of RNFI as compared to richer households and zones. The RNFE of the poor tend to be the low-paid nonfarm equivalent of semi-subsistence farming. Raising the capacity of the poor to participate in the better-paid types of RNFE is crucial — via employment skills training, education, infrastructure, credit. Finally, RNFE has grown fastest and been most poverty-alleviating where there are dynamic growth motors, in particular in the agricultural sector, but also in tourism, links to urban areas, mining and forestry. This means that developing RNF jobs cannot be done at the expense of programs promoting agricultural development.

Do Farm Workers Earn Less? An Analysis of the Farm Labor Problem

AbstractDuring the four decades extending from 1950 to 1960, the ratio of the farm to nonfarm wage fluctuated between 0.45 and 0.55. We employ the Oaxaca technique and the Public Use Microdata Sample of the 1990 Census to decompose the farm/nonfarm wage differential. We also use the American Chamber of Commerce Research Association (ACCRA) cost‐of‐living data to measure the impact of the farm/nonfarm cost‐of‐living index on the wage gap. First, we find that the observed wage gap is reduced by half when nominal wages are deflated by the (ACCRA) cost‐of‐living index. Second, by applying the Oaxaca method separately to a subsample of young employees and a subsample of old employees we find that while for the subsample of employees younger than thirty‐five years the real wage gap practically vanishes, the gap for the subsample of employees who are thirty‐five years of age and over is higher than that of the total sample. This finding lends strong support to the hypothesis that between 1950 and 1970 the process of farm out‐migration was positively selective.

Using evidence of household income diversification to inform study of the rural nonfarm labor market in Africa

The labor market literature in developing countries has seldom drawn on the studies of rural household income diversification. This paper draws on such studies to inform future study of the rural nonfarm labor market in Africa. The review of evidence provides some surprising departures from traditional images of nonfarm activities of rural households. Among the most striking is the dominant importance in the majority of case study areas of nonfarm wage labor (as compared to self-employment), of nonfarm sector earnings (as compared to farm sector wage earnings), and of local nonfarm earnings (as compared to migration earnings). The most worrying finding was the poor distribution of nonfarm earnings in rural areas, despite the importance of these earnings to food security and farm investments. This poor distribution implies significant entry barriers and market segmentation; it is probable that this will lead over time to an increasingly skewed distribution of land and other assets in rural Africa.

Testing for Disequilibrium in the Hired Farm Labor Market: Comment

In a recent article, Duffield and Coltrane use an econometric model to test for disequilibrium in the hired farm labor market. Cusum and cusum of squares tests show that the estimated parameters are stable. Estimated shortand long-run elasticities of adjustment suggest that the national hired labor market adequately adjusts to changes in farm and nonfarm wages, of farms, farm prices, and family labor. The methodology used is sound and appropriate for testing for disequilibrium in a market. However, we have three comments. The first is to question whether their model using time series data from 1948 through 1989 successfully captures the dramatic structural changes that occurred in the farm sector over this period. Among the many changes affecting farm labor are mechanical innovations, production system modifications, and child labor laws. The authors include a number of farms variable and a trend to reflect these structural changes, but it would have been preferable to test for significant differences between blocks of time, and then use a shorter, recent time period for the analysis, say, since 1975. The second is to ask if the results of this model are subject to the Lucas critique (Lucas). The parameters of the model were estimated over a period when the government was continually interfering. Between 1948 and 1989 we've seen the Bracero and H2A programs and special agricultural programs under the 1986 Immigration Reform and Control Act (IRCA). These government programs affected employment levels of hired farm labor. In fact they were designed specifically to increase or maintain the supply of agricultural labor (Heppel and Amendola). So how can this model be used to indicate how well the market adjusts without government interference? The third and probably most important comment is to question the appropriateness of using aggregate U.S. data to model the hired farm labor market. The bulk of the hired farm labor force is found in a handful of states: In California, three-fourths of the farm work force is hired; in Florida, 68%; while in the Cornbelt, only 15% is hired (USDA, NASS). Aggregate U.S. data wash out the heterogeneity of U.S. agriculture and the diversity of farm labor use. The contrast between a salaried hired worker on a Wisconsin dairy farm and a seasonal migrant worker from Mexico who picks California grapes could not be more striking. How meaningful is it to lump them together to analyze an overall labor market? There are many labor markets in the nation, differing markedly by crop and region of the country. In some of these labor markets, for example, where a high minimum wage is enforced, the observed labor quantity may be on the demand curve and there would be a surplus of labor. In other markets where farmers demand more labor than is supplied at the prevailing wage, the observed quantity may lie on the supply curve meaning a labor shortage. In still other markets where temporary workers are attracted at the prevailing wage, a downward supply shift could lead to the observed quantity hired being at or near the intersection of supply and demand. The point is that aggregate U.S. data homogenize these interesting differences. Evidence of labor market equilibrium nationally clearly is not evidence for local equilibria where regional differences are pronounced. Further, it is not true that labor moves easily from shortage to surplus areas. In a recent survey of farmworkers in Oregon (Mason, Cross, and Nuckton), we find that workers don't even shift readily between crops located in close proximity, such as between strawberries and Christmas trees in Oregon's Willamette Valley. Rather, they develop skills in one (or a few related) crop(s) and follow that crop through the production season. Given the heterogeneity of the U.S. farm labor markets, we question the author's use of aggregate U.S. data over four decades to draw the particular policy conclusions for the early 1990s that they suggest (p. 419):

Farm household-economics and the design and impact of biological research in Southern Africa

A farm-household economics approach is used to illuminate Mellor's labour constraint/rapid urbanization problem in the Southern African context. It is viewed as a rational decision by rural households to combine the benefits of indigenous land-use arrangements with the advantages of non-farm wage employment. The implications of this analysis for the design of technology consistent with the objectives and constraints of farm households are then discussed in relation to some general experiences in Southern Africa.

The Cotton Harvester in Retrospect: Labor Displacement or Replacement?

The prevailing view of new mechanical technology is that it has, in large part, pushed labor out of agriculture. An alternative hypothesis is that labor has been pulled out of agriculture by higher wages in nonfarm occupations. The mechanical cotton harvester is used to test the two hypotheses. Estimation of a simultaneous-equation model of the labor market for cotton pickers reveals 79 percent of reduction in hand picking of cotton was due to increased nonfarm wages—the pull effect; the remaining 21 percent is attributed to the decreased cost of machine harvesting—the push effect.

Antebellum Wage Widening Once Again

We welcome the appearance of Scott Grosse's note as an opportunity to repeat our call for new archival research on antebellum trends in the distributions of earnings, income, and wealth.' We hope that our American Inequality and the present exchange will help stimulate such empirical exploration. Since Grosse reports no such exploration and no new evidence, however, is no reason to revise our tentative conclusion about antebellum earnings inequality: after decades of quiescence or narrowing, nonfarm wage gaps widened between about 1816 and abodt 1856. Grosse offers no new data. Every piece of documented information comes from sources we had used and cited in American Inequality. There might appear to be an illusory exception, an offhand and undocumented sentence by Adam Smith, who had somehow heard what carpenters, bricklayers, and laborers earned in distant New York in 1773.2 Directed by us to the richer wage statistics volume of the Bureau of Labor Statistics, Grosse now cites other scraps we had previously seen for the 1770s. These hardly represent fresh data about the contested trends after 1816. Instead of hunting up new data, Grosse selectively sifts through those we had already cited. His procedure seems to be as follows: First, even though Williamson and Lindert cited the whole published literature on the issue of antebellum wage gaps, find some series they did not reproduce in the book. Sure enough, some strengthen their argument while some do not. Next, ignore most of the series that confirm the Williamson-Lindert view and make excuses and complaints about others. It is an excellent formula for revisionism, even if it does not advance knowledge. Grosse repeatedly acknowledges evidence supporting our view, to dismiss it frivolously. He concedes that was a sustained rise in teachers' pay advantage over common labor, but sweeps it away as if offering better pay for teachers of given quality were not the same thing as a rising skill premium. He notes that machinists on average underwent a rising pay advantage, but complains that the overall averages hide a mixture of machinists from different industries. To solve the sector aggregation problem of apples and he then dumps apples, oranges, and other fruit across the page. Oddly enough, among the sectoral figures he presents for machinists, is one pair of observations from the same industry, and this happens to support our view: the skilled-wage ratio for cordage works was only 1.33 in 1840, while the ratio for 1850 was 1.61. While this cordage-works evidence supports our view, we prefer our own attempts to construct fixed-weight wage differentials, based as they are on larger samples. His reading of the evidence from northeastern textile mills is equally odd. He admits that Nickless's data fully support our view, but chooses to fret that there may be no single trend, since the series jumps suddenly-and maintains that increase

Optimum Resource Allocation in U.S. Agriculture: Rejoinder

Tyner and Tweeten's (1966) estimates of equilibrium factor shares were indirect estimates of exponent parameters for Cobb-Douglas production functions. Given these production functions, they addressed issue of resource missallocation in each of five decades. Subsequently, we solved for optimum input combinations using decade averages of same prices (including labor wage rate) as those implicit in Tyner and Tweeten's factor share data and concluded there was no evidence that use of any input was greatly out of equilibrium. This result was quite different than that offered by Tyner and Tweeten in their original article and in their reply to our comment. While they acknowledge in general (for eight of nine input categories) that inappropriate prices were used in their original work, Tyner and Tweeten do not acknowledge any error with regard to labor price used. The upshot of their reply is that only minor differences in results occur when just nonlabor prices are corrected, and implications of their original article for resource misallocation in agriculture still hold. They further suggest that we erred in labor price used in analysis reported in our comment. We think not. Tyner and Tweeten used hired farm labor wage rate to determine current expenditures on all farm labor, which in turn were used in factor share adjustment model to estimate labor's production elasticity. They then suggest in their reply that the appropriate 'prices' [for deriving economic implications such as resource misallocation, supply elasticity, etc.] are 85% of average values for index 'price of nonfarm labor, 1947-49 = 100' [italics added] (fn. 2). In effect, their procedure means that one set of prices should be used to determine expenditures on input and another to reflect its cost when calculating optimum input levels, etc. We contend that to use a nonfarm labor price in derivations is inconsistent with their method for indirectly estimating labor's production elasticity, and this inconsistency is cause of large disequilibrium they found.' Perhaps there is justification for arguing that appropriate shadow price for all farm labor is greater than nominal price of hired farm labor because of nonpecuniary benefits accruing to both hired and family labor, quality improvements in labor over time, and management skill of operator labor. But if a price equal to 85% of nonfarm wage rate is appropriate one for deriving optimum input levels, it is also appropriate for determining labor factor share in order to obtain a reliable indirect estimate of labor's production elasticity. It indeed may be that considerable disequilibrium existed in agricultural sector during period 1910-61, but underlying properties of Tyner and Tweeten model do not reveal it.2

Work Behavior of Low‐Income, Rural Nonfarm Wage Earners

Work Behavior of Low‐Income, Rural Nonfarm Wage Earners

Needed Adjustments in the Supply of Farm Labor

The problem of farm labor adjustment to economic growth is considered. The article attempts (a) to construct a theoretical model of the farm labor market, (b) to utilize available econometric estimates of parameters appearing in the demand for and supply of farm labor, (c) to estimate the annual shift in the supply of farm labor which is required in order to achieve a rise in the farm wage rate comparable to the rise of nonfarm wages.

Regional Supply of Hired Labor to Agriculture

The existence of a wide disparity in labor returns between the farm and nonfarm sectors and considerable variations in agricultural wage rates among regions suggest that there may be real differences in factors affecting the supply of and demand for labor among sectors and regions. A knowledge of these supply and demand structural relationships could be of use to policy makers in developing measures that will help to minimize some of these income and wage discrepancies. In this study, regional supply relations for hired agricultural labor are developed and estimated. Two hypotheses are tested: (a) that members of the hired farm labor force respond to economic stimuli with a distributed lag, and (b) that they participate in a national rather than a regional labor market. The results support both hypotheses. One of the policy implications is that programs which increase nonfarm wages are more effective in the long run in raising farm labor income than programs which raise prices of farm products.

The New Economic History

Over the last decade a revolution has taken place in American economic history, and a new generation of economic historians has arisen who take a sceptical attitude towards the traditional interpretations and feel that the ‘new economic history’ must be firmly grounded in sound statistical data whereever possible, make use of new statistical techniques and, above all, bring to bear the tools of theory in an imaginative way. To them, far too many issues have been decided more on the basis of folk-lore than of rigorous research – the timing of the ‘take-off’, the economic consequences of the Civil War, the effects of the Public Lands policies, for example. Even a scholar of the eminence of Harper measured the burden of British policy upon the colonies without any use of incidence theory, in other words without studying the elasticity of demand for the commodities concerned and so discovering where the burden of taxation would finally fall. Perhaps it all sounds very forbidding, and certainly some of their work is difficult to follow, but the best explanation and justification of the new approach comes from its most eminent exponent, R. W. Fogel. In the preface to his latest book he states ‘I do not mean to suggest that the highly detailed, explicitly theoretical and qualitative type of analysis presented herein is the only useful type of economic history. In the exploration of large and complex historical phenomena, impressionistic surveys are extremely valuable. The essays in this volume could not have been written without ‘the enormous pre-existing literature on railroads, much of which is loosely constructed.’ He goes on to say that the aim is to quantify what can be quantified, and to seek to identify areas where the models of theoretical economics can be called upon for help, especially where the problems of collecting data are particularly acute. The need for accurate statistical information cqn be seen by a brief look at Professor Habakkuk's challenging book on British and American technology in the nineteenth century. He uses the usual historian's technique of calling upon contemporary opinions to show that American labour costs were higher than British, the starting point of his whole analysis. Yet he never seeks to discover by how much they were higher and in what sectors. Indeed, if we look at Moore's book on the Wai them Company, we find the founder writing from Liverpool in 1857 ‘We can hardly offer any inducement for an Englishman to emigrate, as workmen in our line, as well as most trades similar such as jewellery manufacture, etc., are getting quite as good pay… as they could with us.’ This is only one fragment, reliable enough because the writer was actually seeking labour, but probably unusual. All the same it calls for explanation. As George Rogers Taylor has pointed out, if labour in America was so scarce, why is it that non-farm wages rose so mildly in the decades preceding 1860? No progress will be made, quite obviously, without an immense amount of quantitative work and yet in the answers lie some of the most fundamental issues in the whole of American history.

Non-Farm Wage Receipts of Farm Families

An important finding of the All-India Rural Credit Survey which deserves greater attention, is that the farm business in India, generally speaking, depends to a considerable extent on the wages that the farm families earn by working outside their own farm business.