Weather Risk, Wages in Kind, and the Off-Farm Labor Supply of Agricultural Households in a Developing Country
AbstractThis paper investigates the effects of weather risk on the off-farm labor supply of agricultural households in a developing country. Faced with the uninsurable risk of output and food price fluctuations, poor farmers in developing countries may diversify labor allocation across activities in order to smooth income in real terms.A key feature of this paper is that it distinguishes different types of off-farm labor markets: agriculture and nonagriculture on the one hand, and, wages paid in cash and wages paid in kind on the other. We develop a theoretical model of household optimization, which predicts that when farmers are faced with more production risk in their farm production, they find it more attractive to engage in nonagricultural work as a means of risk diversification, but the agricultural wage sector becomes more attractive when food security is an important issue for the farmers and agricultural wages are paid in kind. To test this prediction, we estimate a multivariate twolimit tobit model of labor allocation using household data from rural areas of Bihar and Uttar Pradesh, India. The regression results show that the share of the off-farm labor supply increases with weather risk, the increase is much larger in the case of nonagricultural work than in the case of agricultural wage work, and the increase is much larger in the case of agricultural wages paid in kind than in the cash wage case. Simulation results based on the regression estimates show that the sectoral difference is substantial, implying that empirical and theoretical studies on farmers' labor supply response to risk should distinguish between the types of off-farm work involved.
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Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d07-226.
Date of creation: Nov 2007
Date of revision:
covariate risk; non-farm employment; self-employment; food security; India;
Other versions of this item:
- Takahiro Ito & Takashi Kurosaki, 2007. "Weather Risk, Wages in Kind, and the Off-Farm Labor Supply of Agricultural Households in a Developing Country," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 697-710.
- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
This paper has been announced in the following NEP Reports:
- NEP-AGR-2007-11-17 (Agricultural Economics)
- NEP-ALL-2007-11-17 (All new papers)
- NEP-DEV-2007-11-17 (Development)
- NEP-LAB-2007-11-17 (Labour Economics)
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