Down on the Farm: Agricultural workers receive lower wages than other workers

Rapid urbanization is taking place across the globe, with 54 percent of the world’s population living in cities, up from 30 percent in 1950. Research presented in “The Agricultural Productivity Gap” by Douglas Gollin, David Lagakos, and Michael E. Waugh shows that increased urbanization may benefit the economy because of a persistent “productivity gap” that exists between agricultural workers and workers employed in other sectors of the economy.

Economists have discussed the existence of an income gap between agricultural and non-agricultural workers since the 1950’s. However, before the existence of new detailed data from the Living Standard Measurement Studies released by the World Bank and from the U.N.’s System of National Accounts, it was difficult to discern whether this income gap was due to productivity differences, or the persistent underestimating of agricultural income by researchers.

Agricultural income is difficult to measure because many workers are informally employed, and, often, many of the products produced on a farm are consumed onsite. However, by measuring the areas of individual farms, accounting for the average yield of crops in each individual area as well as expected crop loss, a reasonable estimate of productivity can be achieved. Another difficulty in measuring output is counting the number of hours worked by agricultural workers. Through surveys, the authors found that non-agricultural workers worked about 1.1 times as many hours as agricultural workers, which would not fully explain the gap in wages.

Another theory about the existence of the agricultural income gap is related to worker quality, which includes productivity and education differences between agricultural and non-agricultural workers. Worker quality cannot be measured directly, but the authors were able to observe the level of education in both agricultural and non-agricultural workers. In fact, the difference in education between agricultural workers and non-agricultural workers is significant, with the average non-agricultural worker having 1.3 times more education than the average agricultural worker. However, because the average agricultural income is over two times lower than the average non-agricultural income, the authors suggest that the income gap cannot be fully explained by differences in education. This implies that quality differences between workers are not sufficient to explain the differences in wages.

Even though we observe lower wages for agricultural workers, it may be possible that living in rural areas provides other benefits that explain why people remain in the industry despite receiving lower wages. However, the authors find that “access to key public goods is consistently lower in rural areas than in urban areas.” Literacy rates and the quality of education available are consistently higher in cities than in rural areas, and rates of malnutrition and infant mortality are higher in rural areas.

It may be possible that there are unobserved differences between workers in the agricultural and the non-agricultural sectors that account for differences in productivity. However, a 2013 study by Gharad Bryan, Shyamal Chowdhury and Ahmed Mushfiq Mobarak provides additional evidence that incentivizing people in rural Bangladesh to move into an urban area was associated with an increased likelihood of a variety of positive outcomes. Also, the fact that developing countries had larger gaps between sectors suggests that monetary constraints among rural populations may be a large part of what is driving the productivity gap, and that providing assistance to people living in rural areas who want to move into urban areas may be an effective policy for increasing wages paid to these workers.

Article Source: The Agricultural Productivity Gap, Gollin et. al., Quarterly Journal of Economics, 2014.

Feature Photo: cc/(Helena)