Rural labor markets Flashcards
(20 cards)
What is the relationship between labor force participation and GDP?
What does this pattern say?
- horizontal line
- Shows that developing countries have a high share in labour market but they are not productive.
- The pattern says that they have a higher productivity in the more developed countries.
What about the relationship between GDP and unemployment?
What does it mean?
How can you explain that higher employment does not mean higher GDP per capita?
In more developed countries like USA, the unemployment is higher as more people can afford to be unemployed
- but it does not mean those employed are doing so gainfully.
- workers in developed world cannot afford to be unemployed. They are willing to work at subsistence work.
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What is self-employment in the context of rural labour markets?
Why is this figure pertinent in rural labour markets?
People who work for own activities rather than working for a wage.
Absence of wage employment
- It means they are not in a wage employment and do not earn a wage
- As their marginal productivity is low or very close to zero.
What is the relationship between self-employment and GDP
- Negative relationship
- lower GDP higher self employment
- Higher GDP low self-employment.
What is the relationship between agricultural productivity and GDP.
Positive relationship countries like USA have the highest.
- developing countries productivity is lower and that this low productivity drives low wage
- therefore even if they are employed does not mean they are in gainful employment.
Work through the agricultural labour model.
What is the agricultural labour system also known as?
What does this mean
- Recursive model
MEANS THAT PRODUCTION DECISION AND CONSUMPTION DECISION CAN BE MADE SEPARATELY
- The household’s production and consumption are solved in sequence rather than jointly.
- it firsts solves a profit maximisation problem, then taking income as given it solves the utility maximisation problem.
This means the model is separable meaning that production decisions are independent of preferences.
Steps:
- Make production maximisation decision
- Taking income as given make consumption maximising decision.
For the rural household model when does the model no longer become recursive?
- if the labour market is missing lf and lo can no longer be interchangeable and hence the model is no longer recursive
- As the decision only depends on me know and no longer other people
- if there are no product markets as at that point you eat what you produce and thats it
What assumption are you making in the rural markets model?
Both models are operating under perfect competition which means that it can be recursive.
Which paper tests the recursive condition?
Lafave and Thomas (2014)
- Testing whether recursive property holds for rural indonesian households
Emprical design:
Regress labour demand on household composition
find that larger households use more labour
- this implies that they are not recursive.
- it shows other preferences impact production.
- As if it was a perfect labour market the amount of land they had should not impact how much labour they hire.
What are the sources of imperfections in the rural labour market model?
How do households cope with missing markets?
- family labour is easier to monitor.
In a perfect market they should just select which labour is cheaper.
- However, as family labour is more trustworthy they might opt for this.
- family labour is easier to monitor.
- Land size
hired labour not worth it on smaller plots - Insurance
no guarantee of employment
as they do not have insurance they may under invest
Potential solutions
long-term arrangements with labourers
Pool of workers
What are the implications on reliance on agricultural labour?
Higher fertility - higher incentive to have more labour to work on the land
Lower education - they need to work on the land instead
Women work at home - they are tasked with work on the farm.
Surplus labour - work on family farms has lower productivity than the market.
What paper describes two features of rural labour markets in developing economies?
Lewis (1954) says
1. These markets exhibit downward wage rigidity
2. Surplus labour
Both features of rural labour markets in developing economies,
What does wage rigidity mean in the context of rural markets?
Wage rigities mean that wages don’t adjust to market forces
What is surplus labour?
Even if the people stopped working the output would be the sameWhat
What does Lewis (1954) argue about surplus labour
- Some workers have zero or negative productivity
- Some workers can leave no effect
What paper speaks about downward wage rigidity in rural labour markets?
Kaur (2019)
Which paper speaks about surplus labour in rural labour markets?
Breza et al (2020)
What is meant by surplus labour?
-The marginal product of adding another worker is zero
- the absence of a worker would not be felt as they are contributing so little
What is the Breza et al (2020) paper?
What do they look at and how do they go about it?
- Look for the existence of surplus sector
- They look at an instance with increase in demand, but no fall in output
- Study located in 60 remote villages of Odisha
- offer temporary agricultural labour work (authors set up factories). (In very rural settings)
- Emperimental design:
Some were offered to apply for the factory job - In treated village they gave employment to 80% of those who had signed up.
- In the other 30 villages 20% of those signed up
- They focus on the spillover smaples and see if output, wages and employment are impacted.
- They look at the pre-study pattern
Results:
Shock is statistically insignificant to wage.
However, in peak it does (picks up seasonality)
Impact of wages implies a reserve army that comes out without impacting the wage
Existing wage only impacts if something impacts the reserve army (seasonality)
WAGE IS STATISTICALLY INSIGNFICANT! MARKET DOES NOT WORK!
Impact on employment:
Employment is statistically significant
THIS INCREASE IN EMPLOYMENT CAN ONLY INCREASE WAGE IF NO SURPLUS LABOUR
- When the peak season was also added it caused a shortage in employment.
