Factor prices and rural unemployment in Brazil: a critical analysis of the neoclassic approaches

It is widely known that in Brazil, agricultural! growth and modernization aretaking place together with a substantial “liberation” of the rural workforce. According toevaluations based on the neoclassical doctrine, this is due to a severe distortion of relativefactor prices. Artificially cheap equipment and “expensive” labor have favored a large scalesubstitution of the former for the latter. Thus, workers are being driven out of the farms ata faster rate than that allowed by the creation of jobs in the rest of the economy. To correctthis situation, it would be necessary to eliminate the factor price distortions. The paperargues that these evaluations are mistaken. They ignore the real nature of the process thatled to the adoption of mechanical technologies and to a growing “liberation” of manpowerfrom rural areas; the phenomenon is considerably more complex than what is implied in thesubstitution of equipment for labor along an isoquant exhibiting substitutability. It argues,furthermore, that the substitution of machinery for labor would not be reversed by the mereadoption of a policy eliminating the “distortion” in factor prices. JEL Classification: R23; Q12; J43.