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Earnings Differentials in the Rural Labour Market: Does Non-Agricultural Employment Pay Better?

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Abstract

Rural non-agricultural employment (RNAE) is being increasingly emphasized as a potential pathway out of rural poverty for people who are unable to secure their income in agriculture. Although average earnings in the rural non-agricultural sector are higher than in agriculture, it is unclear whether income prospects are systematically better in non-agricultural activities than in agriculture. This paper tests for existence of earnings differentials between agricultural and rural non-agricultural employment, while controlling for worker and household characteristics. A theoretical farm household model is proposed that predicts that there will be no sectoral earnings differential for unskilled labor, whereas skilled labor will be better off in the non-agricultural sector. Based on Peruvian household data, the empirical findings do not support the notion that unskilled workers would earn a higher income by switching from agriculture to RNAE. Instead it tends to be the relatively well educated who might benefit from higher returns to education in RNAE than in agriculture, consistent with the predictions of the theoretical model.

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  • Jonasson, Erik, 2008. "Earnings Differentials in the Rural Labour Market: Does Non-Agricultural Employment Pay Better?," Working Papers 2008:7, Lund University, Department of Economics, revised 21 Feb 2009.
  • Handle: RePEc:hhs:lunewp:2008_007
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    File URL: http://project.nek.lu.se/publications/workpap/Papers/WP08_7.pdf
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    Cited by:

    1. Nguyen, Duy Loi & Nguyen, Binh Giang & Tran, Thi Ha & Vo, Thi Minh Le & Nguyen, Dinh Ngan, 2014. "Employment, Earnings and Social Protection for Female Workers in Vietnam’s Informal Sector," MPRA Paper 61989, University Library of Munich, Germany.

    More about this item

    Keywords

    non-agricultural employment; income diversification; wage differentials; Peru; Latin America;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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