Fos e , And ew D.
Wo king Pape
C ea ing Good Employmen Oppo uni ies o he Ru al
Sec o
ADB Economics Wo king Pape Se ies, No. 271
P o ided in Coope a ion wi h:
Asian De elopmen Bank (ADB), Manila
Sugges ed Ci a ion: Fos e , And ew D. (2011) : C ea ing Good Employmen Oppo uni ies o he
Ru al Sec o , ADB Economics Wo king Pape Se ies, No. 271, Asian De elopmen Bank (ADB),
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ADB Economics
Wo king Pape Se ies
C ea ing Good Employmen Oppo uni ies
o he Ru al Sec o
And ew D. Fos e
No. 271 | Augus 2011
ADB Economics Wo king Pape Se ies No. 271
C ea ing Good Employmen Oppo uni ies
o he Ru al Sec o
And ew D. Fos e
Augus 2011
And ew D. Fos e is P o esso o Economics and Communi y Heal h, Di ec o o Popula ion S udies and
T aining Cen e , B own Uni e si y. This pape was p epa ed as backg ound ma e ial o he heme chap e
o he Key Indica o s o Asia and he Paci ic 2011. The au ho is g a e ul o pa icipan s a he wo kshop,
“C ea ing Quali y Employmen in Asia”, held 17–18 May 2011, in Manila, Philippines o hei commen s
and sugges ions. The au ho accep s esponsibili y o any e o s in he pape .
Asian De elopmen Bank
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©2011 by Asian De elopmen Bank
Augus 2011
ISSN 1655-5252
Publica ion S ock No. WPS113948
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necessa ily e lec he iews o policies
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Depa men .

Con en s
Abs ac
I. In oduc ion 1
II. Technology 3
III. Human Capi al 18
IV. C edi Ma ke s 21
V. In as uc u e 22
VI. Conclusion 23
Re e ences 25
Abs ac
This pape examines he po en ial o sec o -speci ic p oduc i i y g ow h, human
capi al, c edi ma ke s, and in as uc u e o con ibu e o he de elopmen o
s able, well-paid employmen in u al a eas o low-income coun ies. Pa icula
emphasis is placed on he way ha di e en sec o s o he u al economy
in e ac wi h each o he and wi h local and egional p oduc ma ke s. A simple
heo e ical amewo k and desc ip i e analysis o panel da a om India sugges s
ha mo e emphasis should be placed on inc easing he p oduc ion o goods ha
inco po a e local ag icul u al p oduc s as inpu s.
Tha is, cy
pl
ss
s
(,)=
θ
and pwp
la
ss gg
θ
==
’(
/)
. Mo eo e , because a compe i i e labo
ma ke ensu es se ices sec o p o i s a e ze o in equilib ium, household income is jus
pa l
aw
l
gg s
(/)+.
In he special case o Cobb-Douglas p e e ences wi h se ice good sha e
β
he
expendi u e sha e is cons an . So he labo alloca ed o ag icul u e is independen o
ag icul u al echnology and he e is a uni elas ici y o he wage wi h espec o ha
echnology. Con e sely, i he sha e o he se ice goods in consump ion inc eases
wi h income, as seems plausible, hen he wage will ise mo e han p opo iona ely wi h
echnology. Expansion in he echnology o p oduc ion in he se ice sec o ends o
push labo ou o he se ice sec o because demand is ixed locally. In pa icula , o
Cobb-Douglas p e e ences an inc ease in se ice sec o echnology means ha he p ice
o labo and he p ice o he se ice good alls, ag icul u al labo ises, and ag icul u al
p o i s inc ease. In con as o he case o he pu e ag icul u al ma ke , changes in he
ac ion o he poo will a ec he equilib ium wage i landless and landed households
consume di e en sha es o he se ice good. I he income sha e o se ice goods g ows
wi h income he equilib ium wage will be lowe when land is dis ibu ed mo e equi ably,
al hough o cou se he edis ibu ion o p o i s will ha e salu a y e ec s on equi y.
Now conside he addi ion o a mobile capi al sec o ha p oduces adable goods. In
pa icula assume ha he p o i s in he ac o y o manu ac u ing sec o a e
ypk lk wl
l
k
mmmmmm mmmm m
=−
+−
θδ
(/ )( /)1, (7)
whe e hese p o i s acc ue o ex e nal owne s o he capi al and hus do no a ec
household income and he e o e consump ion in he illage excep h ough he wage.
No e ha capi al is assumed o be supplied pe ec ly elas ically bu ha he e a e
inc easing ma ginal cos s o labo . This la e assump ion is made o echnical easons
(o he wise capi al jumps disc e ely when he wage alls below a p o i abili y h eshold) bu
migh be hough o as e lec ing di e en ial sui abili y o wo ke s o his ac i i y, logis ical
issues associa ed wi h employing a la ge numbe o wo ke s o , as is he case in India
(Fos e and Rosenzweig 2005), inc eased legal s uc u es ha apply o la ge employe s.
A key elemen o his p o i unc ion is ha he en y o capi al depends on he p ice o
labo , o example, i x x
m
m
()=
a
hen
lw
m=−
κκ
12
. As a esul he e ec s o inc eases
in ag icul u al p oduc i i y on he wage may be somewha lowe han hey would be in he
absence o endogenous en y o ac o y capi al. As ag icul u al p oduc i i y pushes up he
demand o labo he e is exi o ex e nal capi al and ac o y labo declines, al hough how
he wages change depends impo an ly on wha happens in he non aded se ice sec o .
While closed o m esul s canno be ob ained o his model, simula ions using
pa ame ic models can be use ul in e ms o unde s anding he basic na u e o economic
o ces ha a ise in he p esence o ac o ies inanced wi h ex e nal capi al. In pa icula
C ea ing Good Employmen Oppo uni ies o he Ru al Sec o | 7

we assume he p oduc ion unc ion o manu ac u es and ag icul u e a e Cobb-Douglas
wi h labo sha e a one hal and consump ion sha e o se ice goods a one hi d. Sha es
o o he goods a e no ele an because p ices o hese goods a e de e mined ex e nally.
The adable ac o y and goods p ices and he cos o capi al a e hen se o 1, each
household is endowed wi h 1 uni o land and 30 uni s o labo , and he inc easing e u ns
o labo pa ame e
δ
m is se o 1 as well. The e ec s o inc eases om 1 o 2 in he
echnology o ag icul u e and o ac o y adables a e simula ed sepa a ely, keeping in
each case he p oduc i i y o he o he echnologies a 1. The esul s appea in Figu es
1–3. As seen in Figu e 1, a doubling o ag icul u al echnology leads o a doubling o
he wage and subs an ial educ ion in he ac o y labo o ce (Figu e 2). The e ec s
o an inc ease in ac o y echnology on ac o y labo a e la ge as expec ed bu he
e ec s on he wages a e su p isingly modes . This la e esul is bes unde s ood wi h
e e ence o Figu e 3, which plo s household income, and illus a es he impo ance o
he non adable sec o . In pa icula , as ag icul u al land is locally owned, an expansion in
p o i s subs an ially inc eases income. This inc eases demand o he non aded goods,
bidding up he p ice o se ices ha help suppo he inc ease in wages. On he o he
hand, as ac o y capi al is assumed o be ex e nally inanced, he e is limi ed eedback in
e ms o g ow h in demand o local se ices a ising om g ow h in his sec o . O cou se
his esul is somewha sensi i e o he assump ion ha ac o y p o i s do no acc ue
o local esiden s. I businesses we e locally owned hen any p o i s ha a e gene a ed
would eed back in o income. Howe e , since unlike land, capi al is lexible and ex e nally
aded, assuming compe i i e en y, p o i s ne o inance cos s will be small—only a ising
in his case because o he inc easing cos o employmen .
Figu e 1: Simula ed E ec s o Ag icul u al and Fac o y Technology on Wages
ag n
Technology
Wage
1.0 1.2
0.13
0.14
0.15
0.16
0.17
0.18
0.19
0.20
0.21
0.22
0.23
0.24
0.25
0.26
1.4 1.6 1.8 2.0
Ag = ag icul u e, n = non a m.
Sou ce: Au ho ’s calcula ions.
8 | ADB Economics Wo king Pape Se ies No. 271
Figu e 2: Simula ed E ec s o Ag icul u al and Fac o y Technology on Fac o y Employmen
ag n
Technology
n o labo
0
1
2
3
1.0 1.2 1.4 1.6 1.8 2.0
Ag = ag icul u e, n = non a m.
Sou ce: Au ho ’s calcula ions.
Figu e 3: Simula ed E ec s o Ag icul u al and Fac o y Capi al on Income
ag n
Technology
n o labo
0
1
2
3
1.0 1.2 1.4 1.6 1.8 2.0
Ag = ag icul u e, n = non a m.
Sou ce: Au ho ’s calcula ions.
Ano he way o looking a his model is ha i shows ha en y o manu ac u ing capi al
p o ides an al e na i e mechanism o expanding u al employmen in a eas wi h
ela i ely s agnan ag icul u e, o example, as a consequence o poo soil o clima ic
condi ions. Bu his inding aises he al e na i e ques ion o whe he i is possible o
non a m employmen in he p oduc ion o adable goods o be complemen a y wi h good
C ea ing Good Employmen Oppo uni ies o he Ru al Sec o | 9
ag icul u al condi ions. In pa icula , he no ion ha g ow h in ag icul u e can lead o he
expansion o alue-added p oduc ion in ag icul u e needs also o be conside ed.
In o de o cap u e alue-added p oduc ion ha is complemen a y wi h ag icul u al
p oduc ion, wo aspec s o ac o y and capi al need o be adjus ed. Fi s , ag icul u al
goods should be an inpu in he p oduc ion p ocess and second, p ices o ag icul u al
commodi ies mus be lowe in highe -p oduc i i y a eas so ha i is ad an ageous o
alue-added indus ies o loca e in hose a eas despi e ela i ely high p e ailing wages.
In o de o c ea e such low p ices, gi en he assump ion ha ag icul u al goods a e
gene ally adable, one needs a deg ee o ic ion in he ag icul u al p oduc ma ke .
Thus he model is augmen ed o assume ha i is cos ly o anspo ag icul u al
commodi ies. In pa icula , he p o i abili y o anspo ing ag icul u al goods om he local
ma ke o he ou side wo ld is he alue o he ou pu on wo ld ma ke s minus he alue
on domes ic ma ke s minus a igu e e lec ing ou pu los in ansi :
() /
*
pp
ggggg
−−
χχδ
2 (8)
whe e he supe sc ip * deno es wo ld p ices. I is assumed o simplici y ha he e is ee
en y in o he expo business and ha he loss is based on o al goods expo ed ( a he
han amoun pe expo e ), so ha in equilib ium, he ze o p o i condi ion dic a es
χδ
gg
gg
pp
=−
(/ )
*1 (9)
This equa ion applies in p inciple o bo h ne expo s and ne impo s in he sense ha
in he p esence o ne impo s he wo ld p ice will be less han he ag icul u al p ice. The
equilib ium condi ion balancing ade in ag icul u al goods is
cypppia
la
ggggggg
(,)( /) (/)
*
+−+=1
δθ
(10)
whe e igdeno es he amoun o ag icul u al inpu used as an inpu in alue-added
p oduc ion.
To keep he model ela i ely simple, i is assumed ha alue-added goods can be bough
and sold a wo ld p ices. This assump ion, o cou se, c ea es a bias in a o o expo ing
alue-added goods ela i e o di ec ly ading ag icul u al goods. In p ac ice, he e
would also be some cos o expo ing alue-added goods (and impo ing manu ac u ed
ones), and he ela i e size o he alue-added sec o would depend on he ela i e
anspo a ion cos s o ag icul u e and alue-added goods. In ac , howe e , he no ion
ha p ocessed ag icul u al goods a e cheape o anspo han a e aw ma e ials
seems de ensible and is, in any case, necessa y o unde s and why on-si e alue-added
p oduc ion may be an impo an sou ce o u al employmen g ow h.
10 | ADB Economics Wo king Pape Se ies No. 271
I is u he assumed ha alue-added labo and ag icul u al inpu s a e pe ec
complemen s in he p oduc ion o alue-added se ices wi h a ixed a io
il
g
/=
µ .
This assump ion aids ac abili y and has minimal impac on he conclusions o he
model, excep ha i shu s down one ma gin o adjus men in he alue-added sec o .
In pa icula , in a mo e gene al model, i wages ise ela i e o he p ice o ag icul u al
goods, one migh expec o see inc eased use o he goods and lowe le els o labo . In
any case, gi en he assump ion, one may w i e p o i s in he alue added sec o as
ypk lk wl lp
l
k
g
=−+−−
θδµ
(/ )( /) . (11)
The esul s o he simula ed model using he same pa ame e s as be o e wi h he
addi ion ha
1
µ
=
and
1
g
δ
=
a e p esen ed in Figu es 4–6. Figu e 4 plo s wage g ow h
a ising om changes in he p oduc i i y o di e en echnologies in he alue-added
p oduc ion model. The esul s a e qui e di e en om hose in Figu e 1. In his case
ag icul u al echnology has almos no e ec on equilib ium wages while alue-added
echnology g ow h leads o mo e han ipling o wages. The eason o his di e ence is
bes unde s ood wi h e e ence o Figu e 5, which plo s he local p ice o he ag icul u al
good. Because o he cos s o anspo ing ag icul u al goods, an inc ease in ag icul u al
echnology pushes down he local p ice o he ag icul u al goods hus o se ing he
inc eases in ag icul u al p oduc i i y a ising om echnology change. By con as , an
inc ease in p oduc i i y o alue-added p oduc ion inc eases he demand o ag icul u al
goods o be used as inpu s. This bids up he p ice o ag icul u al goods and hus leads
o an inc ease in he demand o ag icul u al labo . O cou se, Figu e 4 in a way o e sells
he consequences o ag icul u al echnology on wages, because o he consequences o
local p ices. I local ag icul u al p oduc s (as opposed o alue-added p oduc s which, in
he model, a e ixed a wo ld p ices) a e a la ge sha e o consump ion hen he la ge ise
in ag icul u al p ices will e ode he pu chasing powe o wage wo ke s, leading in e ec o
lowe inc eases in he eal wage e alua ed a local p ices.
Figu e 6 is qui e su p ising and again qui e di e en om Figu e 3. In pa icula , an
expansion in alue-added echnology esul s in a modes inc ease in alue-added
labo while he co esponding inc ease in alue-added labo a ising om an inc ease in
ag icul u al echnology is qui e la ge. This pa e n a ises because o he impo ance o
he local ag icul u al goods p ice in e ms o he p o i abili y o alue-added echnology. I
ag icul u al echnology imp o es, ha lowe s he p ice o ag icul u al goods, hus making
alue-added p oduc ion ela i ely p o i able. On he o he hand, an inc ease in alue-
added echnology bids up he p ice o ag icul u al goods, as no ed, hus d awing mo e
wo ke s back in o he ag icul u al sec o .
C ea ing Good Employmen Oppo uni ies o he Ru al Sec o | 11
Figu e 4: Simula ed E ec o Ag icul u al and Value-Added Technology on Wages
ag n
Technology
Wage
1.0 1.2 1.4 1.6 1.8 2.0
0.02
0.03
0.04
0.05
0.06
1.0 1.2 1.4 1.6 1.8 2.0
Ag = ag icul u e, n = non a m.
Sou ce: Au ho ’s calcula ions.
Figu e 5: Simula ed E ec s o Ag icul u al and Value-Added Technology on Food P ices
ag n
Technology
Wage
1.0 1.2 1.4 1.6 1.8 2.0
0.02
0.03
0.04
0.05
0.06
1.0 1.2 1.4 1.6 1.8 2.0
Ag = ag icul u e, n = non a m.
Sou ce: Au ho ’s calcula ions.
12 | ADB Economics Wo king Pape Se ies No. 271

Figu e 6: Simula ed E ec o Ag icul u al and Value-Added Technology
on Value-Added Employmen
ag n
Technology
Wage
1.0 1.2 1.4 1.6 1.8 2.0
2.0
2.5
3.0
3.5
4.0
1.0 1.2 1.4 1.6 1.8 2.0
Ag = ag icul u e, n = non a m.
Sou ce: Au ho ’s calcula ions.
All he modeling hus a has been in e ms o ac o -neu al echnology. In ac , howe e ,
he e may be impo an di e ences in he ac o in ensi y o di e en echnologies. In
a ecen pape , Fos e and Rosenzweig (2010) explo e he issue o scale economies
in ag icul u e in India. They show ha o e he pe iod 1982–2007 in u al India, he e
was a subs an ial inc ease in mechaniza ion, pa icula ly among la ge a me s. While
adi ionally i has been sugges ed ha small a me s in u al India a e mo e p oduc i e
han la ge a me s, Fos e and Rosenzweig show ha a leas in he las decade and
a e app op ia ely accoun ing o supe iso y cos s, po en ial sea ch cos s o o - a m
employmen , and po en ial endogenei y o land wi h espec o p oduc i i y, la ge a me s
a e mo e p o i able han small a me s, and his p o i abili y is la gely a esul o he labo
sa ing ha is possible h ough inc eased mechaniza ion. Maximal p o i abili y pe ac e is
achie ed in a ms anging 10 ac es in size, which while iny in compa ison o he a e age
a m in he Uni ed S a es, is la ge indeed gi en ha 60% o Indian a me s a m less han
1 ac e, and 95% a m less han 5 ac es acco ding o he Indian Census o 2001 (Fos e
and Rosenzweig 2010).
The ac ha mechaniza ion is bo h labo -sa ing and impo an ly scale-dependen has
wo implica ions. Fi s , in o de o ake ad an age o his new echnology, one may
need o ha e a ms ha ope a e a e ec i ely g ea e scale. This scale dependence is
impo an in e ms o ea nings o poo households because i means ha a la ge sha e
o he popula ion would—ba ing some con ac ual a angemen whe e hey sha ed in
he p o i s o land being a med in la ge uni s—be dependen on labo -ma ke ea nings
C ea ing Good Employmen Oppo uni ies o he Ru al Sec o | 13
a he han combining labo ma ke ea nings and p o i s. Second, mechaniza ion can
displace subs an ial amoun s o labo which, in he con ex o he model, should esul
in lowe wage a es. Mo eo e , while coope a i es and o he o ms o coo dina ion o
smalle a me s o cap u e e u ns o scale can ensu e ha small a me s con inue o
acc ue he en s o land owne ship, hey do no a oid he p oblem o labo displacemen
i he p ima y sou ce o scale economies is h ough mechaniza ion. In his ligh , he alue-
added model o non a m labo de eloped he e seems pa icula ly a ac i e. Inc eased
ag icul u al p oduc i i y h ough mechaniza ion will elease labo bu , by pushing down he
local p ice o ag icul u al goods, inc ease en y o alue-added p oduce s ha in u n can
abso b labo .
Da a collec ed om he ARIS-REDS panel su eys o u al India p o ide some desc ip i e
e idence ha p o ide gene al suppo o he no ion ha alue-added ag icul u al ac i i y
can play a pa icula ly impo an ole in non a m income g ow h. A pa icula ea u e o
hese da a ha has a ely been exploi ed empi ically a e he lis ing iles, which p o ided
a basis o each o he sampling ames in 236 illages in each o he yea s 1969, 1982,
1999, and 2006. These da a p o ide le els o income o he census o households in
hese illages, including also da a on occupa ion and sou ce o income o 1969 and
2006. O e all he da a se s con ain in o ma ion on 34,187 households in 1969 and
115,429 households in 2006.
To cap u e di e ences in di e en pa s o he income dis ibu ion and how hese changed
o e ime, quan iles o he income dis ibu ion in each yea and illage a e cons uc ed
and hen adjus ed o in la ion o e ime. The da a show a ema kable amoun o illage-
speci ic income g ow h. Figu e 7 plo s he 1969–2006 change in he log o household
income o he 10 h and 90 h pe cen iles o he income dis ibu ion and show a high
le el o co espondence in economic g ow h. Figu e 8 plo s he change o he 25 h and
75 h pe cen ile and show an e en close co espondence. Indeed he co ela ion ma ix
in quan ile illage g ow h wi hin India (Table 2) shows a high co ela ion o pa e ns
o g ow h. The lowes co ela ion is o he 10 h and 90 h quan iles o 0.671. The 25 h
and 75 h g ow h in income quan iles co ela ion is 0.876. This o e all high co ela ion
is indica i e o he impo ance o hinking abou employmen g ow h in e ms o wha
happens a he illage le el. Some illages show subs an ial g ow h ac oss all quan iles
while o he s do no .
I is hen help ul o conside wha ea u es o economic g ow h a e co ela ed wi h income
g ow h in he di e en quan iles. While hese eg essions should no be in e p e ed
causally, hey do gi e some sense o wha basic ea u es o he illage economy p edic
o e all income g ow h a di e en quan iles o he dis ibu ion. In pa icula , illage ixed
e ec s a e con olled and he log income o he co esponding quan ile is used as he
le -hand side a iables, wi h se e al measu es o economic ac i i y on he igh -hand
side. These include illage-le el es ima es o he ac ion o wo ke s employed in each o
h ee ca ego ies o occupa ions ( aded manu ac u ing, non aded se ices, and alue-
14 | ADB Economics Wo king Pape Se ies No. 271
added in ag icul u e); he sha e o income om ag icul u e, sel -employed non a m, and
sala ied wo k; yields in ag icul u e; popula ion; and he dis ance o he nea es own
(which changes o e ime due o he p ocess o ans o ma ion o la ge illages in o owns
[se lemen o a leas 20,000]).
Figu e 7: G ow h in 10 h and 90 h Quan iles o ln Income by Village in Ru al India,
1969–2007
−0.2
−0.1
0
0.1
0.2
dlnincome o p90
−0.4 -0.2 0 0.2 0.4
dlnincome o p10
dlnincome o p10 = g ow h log(income) o he 10 h pe cen ile, dlnincome o p90 = g ow h log(income) o he 90 h pe cen ile.
Sou ce: Au ho ’s calcula ions.
Figu e 8: G ow h in 25 h and 75 h Quan iles o ln Income in Ru al India, 1969–2007
−0.2
−0.1
0
0.1
0.2
dlnincome o p75
−0.2 -0.1 0 0.1 0.2
dlnincome o p25
dlnincome o p10 = g ow h log(income) o he 10 h pe cen ile, dlnincome o p90 = g ow h log(income) o he 90 h pe cen ile.
Sou ce: Au ho ’s calcula ions.
C ea ing Good Employmen Oppo uni ies o he Ru al Sec o | 15
Table 2: Co ela ion Ma ix o G ow h Income Quan iles in Ru al India, 1969–2007
10% 25% 50% 75% 90%
10% 1
25% 0.9156 1
50% 0.8488 0.9529 1
75% 0.7662 0.8756 0.9489 1
90% 0.6714 0.7641 0.8455 0.9325 1
Sou ces: Au ho ’s calcula ions; Addi ional Ru al Income Su ey and Ru al Economic and Demog aphic Su eys, Na ional Council o
Applied Economics Resea ch (1969–2007).
The esul s a e p esen ed in Table 3 ( andom e ec s) and Table 4 ( illage ixed e ec s).
We i s no e ha , as expec ed gi en he co ela ion igu es, he p edic o s o income
g ow h a e e y simila ac oss quan iles. In e ms o signi icance, h ee a iables a e
consis en ly signi ican —(i) he pe capi a numbe o wo ke s in alue-added ag icul u al
ac i i y; (ii) ag icul u al yields, sha e o income om ag icul u e, and popula ion; and (iii)
dis ance o he nea es own. The mean o wo ke s pe capi a in he sample in 2006 is
0.03 wi h a s anda d de ia ion o 0.05. Thus he coe icien in Table 3 sugges s ha a
doubling o wo ke s pe capi a as alue-added employees esul s in an 8.0% addi ional
income a he 10 h pe cen ile and 8.8% a he 90 h pe cen ile. The ixed e ec s es ima es
in Table 4 a e smalle and no signi ican o he lowe quan iles bu s ill sugges g ow h o
5.3% om a doubling o wo ke s pe capi a as alue-added wo ke s. While hese igu es
a e no la ge, he ac ha o e all le els o employmen in his sec o a e low indica es
he e may be subs an ial oppo uni y in his ega d.
Yields ha e a posi i e e ec on income in each sec o as one migh expec , al hough
he e ec s a e la ge a high incomes, p esumably e lec ing he ole o ag icul u al
p o i s. I is wo h no ing, howe e , ha he yield elas ici ies a e subs an ially less han
1, a esul ha is a leas consis en wi h he no ion ha non a m employmen esponds
endogenously o high wages.
In e ms o he o he coe icien s, he ac ha he sha e o ag icul u al income has a
nega i e ela ionship wi h income is also indica i e o he gene al impo ance o non a m
ac i i y as a sou ce o u al ea nings g ow h. As he mean sha e o ag icul u al ea nings is
0.63 wi h a s anda d de ia ion o 0.33, hese esul s indica e ha a 1 s anda d de ia ion
inc ease in he ag icul u al ea nings sha e is associa ed wi h a 9% educ ion in incomes
a he 10 h pe cen ile. No e also ha hese e ec s a e la ges o he smalles households,
which is indica i e o he pa icula impo ance o non a m ea nings as a sou ce o
g ow h o wages, which a e he p ima y sou ce o income in lowe -income households.
The s ong posi i e popula ion e ec s, pa icula ly a he lowe quan iles, and nega i e
dis ance o own e ec s, pa icula ly a he highe quan iles, a e indica i e o he ad e se
e ec s o ela i e isola ion on income in u al India.
16 | ADB Economics Wo king Pape Se ies No. 271
ha a e qui e ac i e. O e all he pic u e ha eme ges is one whe e he e a e subs an ial
posi i e agglome a ion economies a ec ing en e p ise de elopmen in u al a eas. A agon
and Rud (2010) show addi ional e idence o he ole o demand e ec s in gene a ing
local economic ac i i y by looking a he e ec s o p oximi y o mines ha a e a ec ed by
commodi y p ice booms.
Donaldson (2010) inds e idence ha he in oduc ion o ail oads in India leads o
g ea e economic ac i i y by exploi ing gains o ade be ween di e en egions. O e all
Donaldson’s esul s can be inco po a ed in he abo e s uc u e h ough explici modeling
o anspo a ion cos s as was done in he case o he alue-added model. No e, howe e ,
ha be e anspo a ion may dec ease he ela i e me i s o alue-added p oduc ion
pa icula ly i he e a e e u ns o scale in p ocessing. In pa icula , he e is less
oppo uni y o he kind o local ag icul u al goods p ices e ec s ha encou age alue-
added p oduc ion in ha model.
Elec i ica ion also seems o ha e impo an e ec s on u al employmen . Dinkelman
(2010) in Sou h A ica akes ad an age o pa e ns o elec i ica ion o examine e ec s
on u al employmen . She inds e idence ha elec i ica ion leads o inc eases in labo
supply on he pa o men and women and dec eases in emale wages. Basic esul s
sugges ha elec i ica ion has p ima y e ec s on small-scale amily en e p ises by
eleasing ime needed by women o domes ic cho es. O e all his pa e n migh be
cha ac e ized as an e ec i e expansion in household labo , wi h he educ ion in wages
being indica i e o he kind o local labo ma ke hypo hesized abo e. Rud (2010) a gues
ha i ms aced wi h poo and un eliable elec ici y supplies mus in es in a ela i ely
cos ly eplacemen echnology.
VI. Conclusion
The p ima y pu pose o his pape has been o conside ac o s ha lead o he
de elopmen o good jobs in u al a eas o de eloping coun ies. Cen al o he discussion
is he ques ion o how echnological change, whe he a consequence o changes in
p oduc ion echnologies o indi ec ly h ough be e p o ision o in as uc u e, leads o
inc easing wo ke p oduc i i y and hus wages. I landholdings a e equally held and all
wo ke s a e employed on hei own a m, hen expansion in ag icul u e echnology will
inc ease household ea nings. Bu his simpli ied model ails in wo espec s. Fi s , land is
unequally dis ibu ed in mos pa s o he wo ld. Whe he due o a legacy o inequali y o
due o e u ns o scale in a ming ac i i y, he e a e subs an ial di e ences in landholdings
ac oss indi iduals and hus he e is subs an ial labo ma ke ac i i y. Fo a me s ha
do no hold land, he ea nings om ag icul u e depend impo an ly on he wages ha
hey ecei e. I does no in gene al ollow ha inc eases in ag icul u al echnology will
C ea ing Good Employmen Oppo uni ies o he Ru al Sec o | 23

imp o e wages. Fo example, i ag icul u al echnology imp o emen s esul in inc easing
mechaniza ion, which subs i u es o labo , hen wages may all.
Second, ag icul u e is no he only sou ce o ea nings in mos low-income coun ies.
In ac , non a m ea nings now app oach almos hal o all ea nings o u al a eas in
de eloping coun ies. Thus wha happens o wages will depend c i ically on wha happens
o he non a m sec o . Bu he non a m sec o is qui e he e ogeneous. On one hand, he
non a m sec o can consis o small-scale a ms selling se ices on he local ma ke .
Since demand in his ma ke is gene a ed locally and he p oduc s o his ma ke a e no
easily ans e ed ac oss space, i seems plausible ha his so o non a m ac i i y will
inc ease wi h ag icul u al incomes, hus ha ing a salu a y e ec on ag icul u al wages, a
leas i he e is some easonable deg ee o mixing be ween wo king in such small-scale
se ices and wo king in ag icul u e as seems plausible. On he o he hand, he non a m
sec o can consis o i ms ha p oduce adable goods o he ex e nal ma ke . He e,
he si ua ion is less clea . Inc eases in ag icul u al p oduc i i y ha inc ease demand
o ag icul u al labo will inc ease o e all labo demand and hus bid up wages in he
ac o y sec o as well. Bu he o e all consequences o wages depend on how his
sec o esponds. I he highe wage esul s in exi om he ac o y sec o , he e ec o
ag icul u al p oduc i i y on u al wages may be dampened. A u he complica ion a ises
wi h espec o he po en ial o alue-added p oduc ion in ag icul u e. Since alue-added
p oduc ion uses ag icul u al p oduc ion as an inpu , g ow h in his sec o ends o bo h
c ea e g ea e employmen in ha sec o and o inc ease he demand o labo in he
ag icul u al sec o . This pai ing o changes has a pa icula ly salu a y e ec on wages.
The e is bo h heo e ical and empi ical basis o belie e ha alue-added p oduc ion
in ag icul u e is a po en ially aluable sou ce o u al ea nings g ow h. Bu i his is
indeed he case i aises ques ions abou how i may be bes encou aged. While we see
p elimina y e idence ha employmen in his sec o is co ela ed wi h income g ow h in
India, o example, i s incidence is qui e low. The e is also he e iden di e ence in he
co ela ion o non a m and a m ac i i y be ween Thailand as documen ed in Townsend
(2011) and in India. One ob ious ques ion ha a ises is how his p ocess is a ec ed by
go e nmen in e en ion in g ain ma ke s. Fo example, one migh conjec u e ha he
la ge-scale p ocu emen p og ams in India—up o 40% o g ain in he ma ke o some
a eas—dec ease u al g ow h in alue-added ac i i ies by educing incen i es o a me s
and local en ep eneu s o seek ou new oppo uni ies in his a ea.
The pape also explo ed he ole o human capi al, c edi ma ke s on in as uc u e on
wo ke p oduc i i y, and hus ea nings. Again he esul s a e mul i- ace ed and depend on
pa icula issues and s uc u es. I seems clea ha all h ee inpu s can ha e a subs an ial
e ec on u al employmen . Bu he p esence o such e ec s need no necessa ily imply
ha hese in e en ions a e cos -e ec i e, pa icula ly wi h ega d o ela i ely emo e
a eas o hose wi h un a o able condi ions o p oduc i e ag icul u e. In such a eas,
policies ha p omo e mig a ion, inclusi e o imp o ed schooling and be e access o
24 | ADB Economics Wo king Pape Se ies No. 271
u ban labo ma ke s, may also ha e salu a y e ec s on u al employmen by encou aging
wo ke s o mo e o a eas whe e hey can ind be e job, by educing labo supply in
sending a eas, and by s imula ing local demand h ough emi ances om success ul
mig an s.
The e also may be subs an ial complemen a i y ac oss in e en ions in hese a eas in
which a se ies o inpu s c ea es he condi ions o a subs an ial inc ease in he local
labo ma ke ha eeds back on i sel h ough g ea e p oduc i i y in ag icul u e, highe
demands o local se ice goods, and inc eased p oduc ion o bo h manu ac u ed
adables, pa icula ly alue-added ag icul u al goods. Expansion in u al employmen is
likely o be mos esponsi e o a b oad spec um o di e en in e en ions wi h pa icula
a en ion o how indi idual p og ams and e ec s a ec he ope a ion o local ma ke s o
p oduc s and labo and he b oade connec ions o hese ma ke s o he wide wo ld.
Re e ences
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De egula ion in he Uni ed S a es.” Jou nal o Finance 65(5, Oc obe ):1637–67.
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26 | ADB Economics Wo king Pape Se ies No. 271
Abou he Pape
And ew D. Fos e examines he po en ial o sec o -speci ic p oduc i i y g ow h, human
capi al, c edi ma ke s, and in as uc u e o con ibu e o he de elopmen o s able,
well-paid employmen in u al a eas o low-income coun ies. Pa icula emphasis is
placed on he way ha di e en sec o s o he u al economy in e ac wi h each o he
and wi h local and egional p oduc ma ke s. A simple heo e ical amewo k and
desc ip i e analysis o panel da a om India sugges s ha mo e emphasis should be
placed on inc easing he p oduc ion o goods ha inco po a e local ag icul u al p oduc s
as inpu s.
Abou he Asian De elopmen Bank
ADB’s ision is an Asia and Paci ic egion ee o po e y. I s mission is o help i s
de eloping membe coun ies educe po e y and imp o e he quali y o li e o hei
people. Despi e he egion’s many successes, i emains home o wo- hi ds o he
wo ld’s poo : 1.8 billion people who li e on less han $2 a day, wi h 903 million
s uggling on less han $1.25 a day. ADB is commi ed o educing po e y h ough
inclusi e economic g ow h, en i onmen ally sus ainable g ow h, and egional
in eg a ion.
Based in Manila, ADB is owned by 67 membe s, including 48 om he egion. I s
main ins umen s o helping i s de eloping membe coun ies a e policy dialogue, loans,
equi y in es men s, gua an ees, g an s, and echnical assis ance.
Asian De elopmen Bank
6 ADB A enue, Mandaluyong Ci y
1550 Me o Manila, Philippines
www.adb.o g/economics
ISSN: 1655-5252
Publica ion S ock No. WPS113948
Augus 2011
P in ed on ecycled pape
P in ed in he Philippines
<01139488>