Agricultural Productivity, Hired Labor, Wages and Poverty : Evidence from Bangladesh

This paper provides evidence on the
effects of agricultural productivity on wage rates, labor
supply to market oriented activities, and labor allocation
between own farming and wage labor in agriculture. To guide
the empirical work, this paper develops a general
equilibrium model that underscores the role of reallocation
of family labor engaged in the production of non-marketed
services at home (`home production'). The model
predicts positive effects of a favorable agricultural
productivity shock on wages and income, but the effect on
hired labor is ambiguous; it depends on the strength of
reallocation of labor from home to market production by
labor surplus and deficit households. Taking rainfall
variations as a measure of shock to agricultural
productivity, and using subdistrict level panel data from
Bangladesh, this paper finds significant positive effects of
a favorable rainfall shock on agricultural wages, labor
supply to market work, and per capita household expenditure.
The share of hired labor in contrast declines substantially
in response to a favorable productivity shock, which is
consistent with a case where labor-deficit households
respond more than the labor-surplus ones in reallocating
labor from home production.