Implications of the seasonality of labour for rural livelihoods and agricultural supply response

Agriculture is unique from most other sectors, because of its strong reliance on weather inputs and seasonal requirement for production factors. The seasonality of labour markets is a well-known issue and is particularly relevant for rural livelihoods in developing countries, where a large share of the population relies on labour intensive agriculture. All the more astonishing is the fact, that seasonality of labour markets has hardly been incorporated in economy-wide models such as computable general equilibrium (CGE) models. This study develops the first national CGE model framework with an explicit depiction of seasonal labour markets. In order to demonstrate the relevance of seasonality for model outcomes the model is applied to a case study of Bhutan being affected by an increase in cereal prices. If the seasonality of labour markets is accounted for we find that the price shock results in a substantially lower supply response of the agriculture sector and that ignoring the seasonality of labour markets results in an overestimation of positive welfare effects for farm households. Furthermore, we find that incorporating seasonal labour results in a more accurate understanding of resource constraints, which can benefit the application of models for policy analysis.