American Economic Association Princeton University

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Rural Wages Labor Supply and Land Reform,A Theoreticaland EmpiricalAnalysis. By MARK R ROSENZWEIG, Land reformis one of the most men entials are set and thus provide littleguid. tionedof the theoreticalpolicy instruments ance on how wage rates would be affected. discussedin the developmentliterature yet by changes in land ownership patterns. relativelylittleattentionhas been paid to More recently Pranab Bardhan and T N. the wage rate consequences of such a pro Srinivasan David Newbery and Clive Bell. gram despite the fact that perhaps more and Pinhas Zusman who formulategeneral. thanone halfof ruralfamiliesin a develop equilibriummarket or bargaining models. ingcountryreceivea substantialproportion determiningendogenouslythe rental share. of their income from wage earnings in paid bytenantsharecroppers have assumed. agriculture One reason for this lacuna that agriculturalwage rates are exogenous. maybe thatthedetermination of wages and or determinedonly by nonagriculturalfac. familylabor supply in the agriculturalsec tors All of these models assume that rural. tor of LDCs has also been somewhat ne labor is homogeneous. glected particularlyin the context of a Anotherreason why the potential wage. heterogeneouslabor force 2The subsistence impactof a land reformprogrammay have. or institutionalwage models of W Arthur received little attentionis that models of. Lewis John Fei and Gustav Ranis and peasant familybehavior such as those of. Gerald Rodgers for instance offer no A K Sen Dipak Mazumdar and Robert. theoryof how rural wage levels or differ Mabro typically embody two restrictive. assumptionswhichwould tend to make the,equalization of landholdings appear wage. Associate professor Yale UJniversity The research, embodied in this paper was supported in part by a augmenting although this implication has. grant from the Ford and Rockefeller Foundations neverbeen formallyderived These assump. Programin Support of Social Science and Legal Re tions are that 1 agricultureis dualistic. search on Population Policy and with fundsfrom the withsmall farm familiesfacinglowershadow. U S Agency for International Development under,Order No AID otr 1432 Helpful suggestions and.
prices of labor leisure than large farm, commentswereprovided by James L McCabe Mark landlordsbecause of impedimentsto labor. Gersovitz an anonymous referee the managing edi mobilityand 2 agriculturalhouseholds are. tor and membersof the Economic Growth Center dichotomous small farmers employ. Yale University I am also gratefulto the membersof familylabor and maximize utility while. the Research Program in Development Studies, PrincetonUniversity for the use of their facilities large farmsonly utilize wage labor and. Research assistance was provided by James Devine maximize profits Data froma 1970 71 all. Anne Morgan and Roberta Robson India surveyof over 5 000 households col. INotable exceptions are R Albert Berry Mark lected by the National Council of Applied. Gersovitz and M A Rahman All of these authors,however employgeometricanalyses with differing as. Economic Research3indicate however that, sumptionsleading to wholly different predictions almost all cultivatorhouseholds large and. regardingwageeffects None considerthe heterogeneity small participateactivelyin the labor mar. of agriculturallabor pay attentionto questions of ket as eitherbuyersor sellers of labor ser. stability or attemptto apply theirmodelsto data vices withalmost 88 percentof households. 2lnformationon the differential impact of alterna, tiveagriculturalpolicies includingland reform on sex cultivating a gross croppedarea less than.
or age specificwage rates is not only importantin 1 5 acres utilizingsome hiredlabor Seventy. settlingincome distributionand equity issues but as ninepercentof thesesmall farmhouseholds. suggested in an article by the author and Robert, Evenson may have significantimplicationsfor popu 3For a more detailed discussion of these data see. lationgrowthand schoolingas well the author,848 THE AMERICAN ECONOMIC REVIEW DECEMBER 1978. had some familymemberswho participated labor supply on rural wages and wage dif. in the labor marketwith55 percentreport ferentialsare assessed and the effectsof. ing household members earning agricul land reform on wages are derived and. turalwages and workingan average of 100 parameterizedwithrespectto economies of. days in the market Moreover while almost scale the extentof agricultural dualism. 96 percentof the largestfarms 30 acres differential income leisureeffectson large. hiredlabor 85 percentalso utilized family and small farms and the relativedisparity. workers in landholdings Section III contains an, These data indicatethe purchaseof labor empiricalanalysis based on the theoretical. by almost all farmsregardlessof size and frameworkin which I estimatethe param. the extensiveuse of family labor by the etersof a six equationsimultaneous equa. largest farms This suggeststhat the di tions systemdescribingthe determination. chotomization of cultivatinghouseholds of rural wage rates and labor supply for. by objective functionwould appear to be males females and childrenbased on ag. not onlycounterfactualbut less usefulthan gregateIndian data The resultsappear gen. merelydistinguishing large and small farms erallyconsistentwith the competitivemar. accordingto whethertheyare net importers ket model and indicate that rural wage. or exportersof labor services a distinction levels and a measure of landholding in. whichidentifies who benefitsand who loses equalityare negativelyassociated but that. froma change in wage levels Moreover as an equalizing land redistributionwould. will be shown below when the dichotomy exacerbate agricultural wage differentials. is dropped the theoretical impact of a betweenmales and females. change in the distributionof landholdings, on wage ratesbecomes ambiguous withthe I The CompetitiveMarket Model and. possibilitythatwage ratesmay fallas a con Propertiesof Equilibrium. sequence of a land reformdespite dualism, and or decreasing returnsto scale in agri To capturethe essentialfeaturesof rural.
culturalproduction 4 agricultureand to maintain tractability. The primaryobjectiveof this paper is to assume a labor market composed of two. formulateand test a general equilibrium typesof labor male and female and three. model of rural wage determination It em agriculturalhouseholds a landless house. bodies behavioral assumptions consistent hold and two households withdifferent size. with the labor mobilitythat characterizes plots small and large of quality standard. the Indian agriculturallabor market and ized land producing a homogeneous agri. ascertains both theoreticallyand empiri culturalcommodity The marketis initially. cally the effectsof a redistributionof land assumed to be competitiveso thatall house. holdings on agriculturalwage levels and holds are price takers but wage rates are. sex age wage differentials In Section 1 a determinedendogenously There are how. competitive three sectorgeneral equilib ever costs which vary with the labor time. riummodel of a dualisticagriculturallabor spent on the land owned by other house. marketwith two kinds of labor is formu holds which are assumed to be borne en. lated and the stabilityand otherproperties tirely by workers 5Each household con. of the equilibriumare described In Section tains two persons one of each labor type. II the impact of changes in agricultural,5These costs are assumed to embody search and. 41n addition to these assumptions Berry who em directtransportationcosts and reflectthe value of the. phasizes the possibilityof a wage decrease followinga disutilityof off farm work and the difficulties. land redistribution abstractsfromlabor leisurechoices tributingfamilyincome among memberswhen some. in all households Gersovitz in his nondualistic ex individualsare employed away fromhome Off farm. ample assumes production is characterized by con labor costs per unit of labor time are assumed to be. stantreturnsto scale and rules out negativelysloped exogenous and invariantwithrespectto time worked. labor supplycurves Rahman assumesconstantreturns Relaxation of the latterassumption introduces con. to scale productionand neglectslabor leisurechoice siderablecomplexityintothe analysis. VOL 68 NO 5 ROSENZWEIG RURAL WAGES AND LAND REFORM 849. each owninga unitof labor time The two whereflL WK flK WK Pk and F is a. typesof labor are imperfectsubstitutesin twice continuously differentiablestrictly. agriculturalproduction but labor of each concave productionfunctionwith positive. type fromdifferent households is perfectly cross partials which may exhibiteitherde. substitutable 6No labor is sold outside the creasing constant or increasingreturnsto. agriculturalsector scale, The landless household supplies Ijsm Each of the three households maximizes. 1 IM and I 7 1 I amounts of labor familyutil,an identicaltwice differentiable. to the market where IN and IN are the ityfunctiongivenby 5 withrespectto the. quantitiesof leisuretimeof the husband and consumptioncommodityXi and the leisure. wifein the landless household Total con of the two household members each of. sumptionof thelandlessfamily assumingno whichis assumed to be noninferior subject. saving and a unit price for the composite to the relevant budget constraintsin 1. consumptioncommodity is thus and 4,1 XN INItf IN lI N 5 U U X Ii 1i i N S L. whereHN WK PK K M W WK are If only interiorsolutions are considered. the marketwages paid to hired male and the necessary conditions for each house. femalelabor and PK is the cost per unit of hold in addition to those implied by the. labor timesupplied to the market assumed budget constraints are given by equations. to be exogenous 6 through 8,The small farmhousehold owns As units.
of land and is by definitiona net exporter 6 UX Ti O i N S L. of the labor servicesof both the husband,7 UKi TIiIIKi i N S L. and wife The large farmhousehold owns, OASunitsof land where0 is a scalar chosen 8 FK l K O i S L. such that the household is an importerof, labor Denoting LiM and Li i S L as whereUi is thepartialderivativeof 5 with. thetotal amountsof male and femalelabor respectto Ik in households of type i Fi is. utilized on the land owned by each land the marginalproductof LK in farmhouse. owning household the quantities of male holds of type i and ikiis the Lagrangean. and femalelabor supplied exported to the multiplierforhouseholdi. market by the small household XI and Equations 7 and 8 give the standard. AS and the amounts of labor hired im utility and profit maximizing results de. ported by the large landowningfamilyXM scribingthe optimal quantities of leisure. and XI are givenby and total labor use if any for each house. hold WithPK 0 themarketis dualisticin, 2 X IsK LK thesense thatsmall landowninghouseholds. 3 L ifK O K M W utilizemore labor per acre than large land. owners because of the differentialshadow, whereliK is the total work time of family prices of labor FS WK FK WK Each.
memberK on thefarmof size i memberof thesmall landowninghousehold. The quantities consumed by the land allocates his her labor on the family sland. owninghouseholds Xs and XL are thus up to the point wherethe value of his her. marginalproductjust equals the net wage,4 Xi F LiM LiW OJAs. he she receivesin the market WK PK, l jXil H l jxi Hi i S L Members of the large landowning house. j 0 fori S 1 fori L holds devote all their work time to their. own land and hireeach typeof labor up to,6Also assume thatthe land marketis imperfect such. that the distributionof land is fixed ignore other thepointat whichthe marginalvalue prod. agriculturalinputs and abstract from uncertainty uct of that labor type is equal to the ap. seasonality and land tenureconsiderations propriatemarketwage WK. 850 THE AMERICAN ECONOMIC REVIEW DECEMBER 1978,To derive the partial equilibriumcom diNo I A. parative static properties for the three dWK A,households firstwritethe matrix N.
f KK IJKa K,uiX uixM UXW,uw i K M n 2,UXM UMm U Wm Hl. 11 diI7K If,UWW Kh I N K for K sh,i N S L whereaN is the income effecton leisurefor. Differentiatingequations 1 6 and 7 familymemberK, fori N we get equation 9 wherefiN is Second order conditions constrain the. thus the bordered Hessian matrix for the firsttermin equation 10 the compensated. landless household Denoting the deter substitutioneffect AZK to be positive since. minantof fi as Xi and the cofactorof row r ON 0 and. ON 0 The normality as, and column c of i as O c we obtain the sumption however impliesthat the second. standardSlutskyequations forthe landless term containingthe income effecton lei. household s labor supply sure aK is negativeso that equation 10 is. N dWM N dpM,d N1N MN dWw,IfNM d WM Ifw d Ww fNM dpM 1yAw.
0 0 f M dl,O 0 0 FiMM FiU 0 dLiM,o o 0 FM F iW 0 dL i. 1 lli II 0 0 di,d M FLMA i dAi,dWW FL WA dAi,LM liM dWM LW IP W dWw FAidA. VOL 68 NO 5 ROSENZWEIG RURAL WAGES AND LAND REFORM 851. consistentwith eithera backward bending Equations 15 and 17 giving own. or positivelysloped supply curve for land and cross effectsof a rise in wage rates and. less laborersof eithersex The sign of 11 landholdingson total labor usage on the. depends on whetherthe leisure time of the landowning farms indicate that if com. husband and wifeare complementsor sub petitiveconditionsprevail the partial equi. American Economic Association Rural Wages Labor Supply and Land Reform A Theoretical and Empirical Analysis Author s Mark R Rosenzweig Source The American

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