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Wages, Prices and Agriculture: How Can Indian Agriculture Cope with Rising Wages?

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  • Hans P. Binswanger
  • Sudhir K. Singh

Abstract

Rapid economic growth in India has resulted in rapidly rising rural wages. Using the framework of variable profit functions and household level data, we study econometrically the wage impacts on crop agriculture. Rising wages are associated with decreasing crop output, other things being equal. Crop prices would need to increase by 80% in the short run to offset the effect of an agricultural wage increase, or by 140% in the short run to offset rural non†farm wage increases as well. However, because non†land farm assets respond positively to the non†farm wage, in the medium term this increase is reduced to 74%. During the period of 1999/00†2007/08, growth in non†land farm assets, the labour force, education and technology has easily compensated for the wage increase, and probably also for the accelerating wage growth. Focusing on growing these shifter variables is a much better policy option than raising prices that would come at the expense of consumers or taxpayers.

Suggested Citation

  • Hans P. Binswanger & Sudhir K. Singh, 2018. "Wages, Prices and Agriculture: How Can Indian Agriculture Cope with Rising Wages?," Journal of Agricultural Economics, Wiley Blackwell, vol. 69(2), pages 281-305, June.
    • Handle: RePEc:bla:jageco:v:69:y:2018:i:2:p:281-305
    DOI: 10.1111/1477-9552.12234
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    Cited by:

    1. Zheng, Hongyun & Ma, Wanglin & Zhou, Xiaoshi, 2021. "Effects of Renting-in Cropland on Machinery Use Intensity and Land Productivity: Evidence from Rural China," 2021 Conference, August 17-31, 2021, Virtual 315084, International Association of Agricultural Economists.
    2. Zhoufu Yan & Shurui Zhang & Fangwei Wu & Binlei Gong, 2023. "Increasing Wages, Factor Substitution, and Cropping Pattern Changes in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 31(5), pages 190-214, September.
    3. Zhihao Zheng & Yang Gao & Rodolfo M. Nayga & Yinyu Zhao, 2023. "Policy reform and farmers' coping strategies: The case of corn price shocks in Heilongjiang Province of China," Review of Development Economics, Wiley Blackwell, vol. 27(2), pages 1135-1156, May.
    4. Vis Taraz, 2023. "Public works programmes and agricultural risk: Evidence from India," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(2), pages 198-223, April.
    5. Zhihao Zheng & Yang Gao & Shida R. Henneberry & Rodolfo M. Nayga, 2023. "Policy reform and farmers' heterogeneous response: Measuring the income effects of corn price shocks," Agribusiness, John Wiley & Sons, Ltd., vol. 39(2), pages 564-585, March.
    6. Liu, Xinyue & Wang, Xiaobing & Xu, Zhigang, 2023. "The polarization and constraints of scale farming in China under the impact of rising wages," Journal of Asian Economics, Elsevier, vol. 86(C).

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