Seasonal labor demand and labor supply of rural households: the estimation of a dynamic agricultural household with risk

Skoufias, E.

Working Paper Department of Economics, Pennsylvania State University ( 9-89-9): 58pp.

1989


Document Number: 351258
The evaluation of policies aimed at increasing wages and employment in the rural sectors of developing countries requires knowledge of the factors determining the labour demand and supply decisions of rural households. Existing empirical estimates are derived from models that typically ignore the effects of heterogeneity. This paper suggests that ignoring heterogeneity, arising either from differences in abilities or risk preferences, makes a significant difference to the obtained responses. It also derives consistent estimates for interseasonal elasticity of substitution of labour supply for males and females, measuting the extent of interseasonal variation in thet elasticity of input demand, for both sexes. Such elasticities are important to the analysis of employment and wage effects of technical improvements and production practices, aimed at increasing agricultural output and utilizing labour more evenly across seasons. The empirical estimates obtained indicate that accounting for risk and dynamics in the estimation of an agricultural household model has serious effects on the estimated labour demand elasticities. Estimates also provide evidence of the importance of heterogeneity of male and female labour, for unlike males, females appear to be intertemporally substitutable. It is concluded that any serious study of the issue of heterogeneity between family and hired labour must first control for gender composition in the two categories. Finally, possible extensions of the proposed framework are presented and shortcomings of the model are addressed. It may be noted that the hypothesis is based on several assumptions which may limit its general applicability.

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