Seasonal rural labor markets and their relevance to policy analyses in developing countries |
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Institution: | 1. Agricultural and Food Policy Research Group, University of Hohenheim, Schwerzstr. 46, 70599 Stuttgart, Germany;2. Department of Agricultural Economics, Humboldt-Universität zu Berlin, Berlin, Germany;3. Research and Development Center Yusipang, Ministry of Agriculture and Forests, Thimphu, Bhutan;1. Department of Agricultural & Resource Economics, University of Arizona, United States;2. Department of Agricultural, Food, and Resource Economics, Michigan State University, United States;3. Joint Research Center, European Commission, Spain;1. Cornell University, Dyson School, Warren Hall 463, Ithaca, NY, 14850, USA;2. University of Alabama, Department of Economics, Finance, and Legal Studies, USA;3. University of Nairobi, Department of Economics, Kenya;1. Division of Bioeconomics, Department of Earth and Environmental Sciences, KU Leuven, Leuven, Belgium;2. Living Standards Measurement Study (LSMS), Survey Unit, Development Data Group, The World Bank, Rome, Italy |
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Abstract: | Seasonality is a salient feature of rural livelihoods and particularly within agriculture the demand for labor varies with the seasons and weather. In low-income countries, agriculture employs almost two-thirds of the labor force and incomes from labor are a major determinant of welfare. Therefore, an appropriate model representation of rural labor markets is critical when analyzing agricultural and food policies. Economy-wide models are commonly used for ex-ante policy analysis, but have so far ignored the influence of seasonality, implicitly assuming separability of seasonal labor demand and supply. This study relaxes that assumption using a computable general equilibrium (CGE) model calibrated to the Bhutanese economy as an illustrative case. Using model setups with and without seasonal labor markets, a cereal export ban of India is simulated leading to higher import prices for Bhutan. Results demonstrate that neglecting the influence of seasons on rural labor markets systematically biases model results. Assuming homogeneity of labor units, i.e., allowing substitution across seasons, understates the impacts of policy changes on rural wage rates, distorts households' labor-leisure trade-off decisions and overstates agricultural supply response. Given the widespread use of economy-wide models, the results are important for understanding the implications of domestic and global policy changes for agriculture and welfare in developing economies. |
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Keywords: | Rural livelihoods Seasonal labor Rural labor markets Economy-wide modeling Policy analysis Bhutan C680 J220 J430 O130 |
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