Theme 4: Productive employment in rural farm and non-farm sectors - increasing labour productivity and reducing factor market imperfections

Motivation and situation analysis

Agriculture remains the key sector in driving economic growth and poverty reduction in many developing countries. Agricultural together with the allied rural non-farm sectors provides livelihoods for about 3.4 billion people living in rural areas around the world (World Bank, 2013). In Sub-Saharan Africa (SSA), 63% of the population still resides in rural areas, with over 80% of the population depending directly on agriculture (IFAD, 2011). The allied nonfarm sector (often related to agriculture), through forward and backward linkages, contributes a significant share to employment, income generation and food security (Reardon et al., 2007). Studies also show that participation in non-farm employment enabled the rural smallholders to invest in agriculture and adopt productivity enhancing inputs and technologies to improve farm productivity (Reardon et al., 2000; Ruben and Van den Berg, 2001; Bezu and Holden, 2008). This is because many rural areas suffer from credit and insurance market constraints so that employment in non-farm activities provides essential savings for agricultural investment; signal credit worthiness; and serve as insurance against agricultural shocks (Bezu et al., 2012).

Inclusive growth and poverty reduction in many developing regions will therefore require continued productivity change in agriculture and in the rural non-farm sector so that these sectors will continue to attract skilled labour and provide employment for youth, women and other workers. Although the share of agriculture in the overall economy and in employment will decrease progressively with economic growth, closing labour productivity gaps between the agricultural and non-agricultural sectors will remain important for competitiveness of the agricultural and rural non-farm sectors in employment and overall economic transformation. Productivity growth in agriculture and the rural non-farm sectors will in turn spur rural transformation which is a comprehensive process of structural economic and social changes, whereby rural economies and societies evolve as part of national development processes and contribute to eradicating poverty (IFAD, 2011).

Some important features of these transformation include the increase of agricultural and nonfarm labour productivity, both through diversification and intensification; the diversification of the agricultural and non-agricultural rural economy; the increasing commercialisation of value- added agricultural products; the closer integration of local markets with regional, national, and global markets; structural changes from semi-subsistence to market-led smallholder production and participation in high value food chains; growing affluence and narrowing of the rural-urban divide, and growth of agri-exports including food other produce from the rural sectors (Swinnen et al., 2010; World Bank, 2008).

Employment creation and transformation of the rural sector is however constrained by market imperfections and rigidities in labour and other factor markets as well as poor infrastructure and social and cultural impediments that condition access to markets, productive assets and services required to improve labour productivity, job creation and enterprise development. Women in rural areas particularly face significant challenges in finding descent and productive employment because of various social, cultural and economic factors that further constrain their access to resources and services. This makes it more difficult for women to diversify their income sources and overcome poverty. In  rural areas, men and women typically have different roles and responsibilities which extend to both household and farm settings and these vary depending on various factors such as religion, culture and ethnicity.

Nevertheless, women often contribute significantly to farm production, especially through participation in various labour-intensive seasonal production activities and play an important role in time-intensive household chores, including cooking, cleaning, feeding and raising children. This may reduce the amount of time available for income diversification and agribusiness development. Furthermore, rapid out migration of adult male labour and the youth from rural areas to urban areas because of the high rates of rural unemployment and underemployment may further contribute to marginalisation of the rural sector. Out-migration has significant ramifications on the socio-economic and demographic composition as well as agricultural production and rural employment. The yield gap between men and women averaging around 20–30 percent in many countries in Africa is partly attributed to disparities in rights of access to services (FAO, 2011). Because of various  limiting  factors, women  may not have access  to productivity enhancing programmes implemented by governments, microfinance institutions and NGOs to enhance access to inputs and improve productivity (Morris et al., 2009). Understanding income and labour productivity gaps in the rural farm and non-farm sectors and addressing gender inequalities and other social and economic factors that perpetuate the cycle of low productivity and poverty are important policy issues for productive employment and inclusive growth (Blackden et al., 2006; Quisumbing and Pandolfelli, 2010).

Similarly, millions of youth graduating from school and universities are not keenly interested in looking for employment in the rural areas because of low returns and underdeveloped employment opportunities, reflecting lack of complementary investments in the agricultural and rural non-farm sectors to attract and retain young talents. As a result, rather than contributing to alleviating the already high levels of unemployment at national level, the rural farm and non- farm sectors themselves suffer from high levels of unemployment. They also fuel out-migration and unemployment and underemployment in the cities as the youth leave rural areas in the hope of finding jobs which do not often materialise as many urban areas lack the labour-intensive industrial and service sectors needed to absorb this large labour supply. This prevents the youth from actively participating in and making meaningful contributions to economic development despite their high creative potential and human capital. The question of how best to stimulate labour productivity and employment in rural areas has therefore becomes a very timely and pertinent policy question in spurring inclusive growth and poverty reduction in developing countries.

 Research issues

Raising labour productivity and correcting labour market imperfections is crucial to structural transformation of the rural economy in developing countries. The key research questions in this thematic area will therefore focus on the performance of rural markets, with a special attention on labour productivity in agriculture and non-farm sectors, and how policies and institutional arrangements may be improved to  increase labour productivity and increase employment opportunities in the rural sector in developing countries, especially for women, youth and others. In addition, this thematic area will analyse the contribution of employment in agricultural and rural non-farm sectors to decelerate migration of labour from rural to urban areas.

4.1   Growth in labour productivity and inter- sectoral shifts in labour demand

Growth in labour productivity, overall and within agriculture, has been a strong predictor of poverty reduction because of the important linkages between wages, household self- employment, and the  real incomes of the poor. Agricultural labour productivity growth  is particularly important because of these direct effects on the many workers who participate in the agricultural sector, and also because it causes growth in other sectors (De Janvry and Sadoulet, 2010).

·         What are the key trends and determinants or drivers of labour productivity change in rural areas?

·         How does the agricultural sector perform in terms of labour productivity, wages and income growth in relation to the rural non-farm sector and other sectors in the economy?

·         How does the labour productivity differential affect patterns of employment, labour allocation and overall competitiveness of the rural sector for employment and job creation?

·         How does labour productivity and income growth vary between men and women in rural areas and what factors cause these gaps?

 

4.2           Policy and market imperfections and enterprise development

The overall contribution of the agricultural and rural sector for employment generation is constrained by policy and market imperfections that perpetuate low labour productivity and sustain disparities in terms of employment opportunities between rural and non-rural sectors. The high level of unemployment in rural areas may therefore be a manifestation of the inherent market, policy and institutional gaps and imperfections and a better understanding of these factors would be crucial for spurring employment and enterprise development in these sectors.

·         How important are the imperfections in labour and other factor markets in rural areas and how do they shape patterns of investment and productivity growth in agriculture and the allied non-farm sectors?

·         How important are public and social policies related to productive assets (e.g. land) and social services (including education, health, sanitation, etc.) in closing labour productivity and income gaps across sectors and among men and women?

·         How do market and policy imperfections influence incentives for private sector investment and enterprise development for inclusive growth, job creation  and employment in rural areas?

 

4.3           Migration and employment in the rural sector

Another important area of research with significant knowledge gaps is better understanding of how the agricultural and rural non-farm sectors will contribute to attracting and retaining skilled labour and slowing down exodus of labour from agriculture and the rural sectors to urban areas where employment opportunities are also limited. In particular, it will explore how workers and the youth perceive the farm and non-farm rural sectors as a means of employment and future livelihoods and what kinds of policies and interventions would be needed to enhance the role of the agricultural and rural non-farm sectors to contribute more effectively in creating jobs and employment in the rural sector and reducing unproductive outmigration  to the cities and townships.

·         How does the overall social and economic inequality shape the patterns of employment and migration between the rural and urban sectors and what factors will bridge this rural- urban divide or even reverse the flow of skilled labour from rural to urban areas?

·         Will income and labour productivity growth in the agricultural and rural sectors slow down the exit and outmigration of labour to the cities and to what extent would this contribute to reducing rural unemployment?

·         How does labour productivity change and income growth in the rural sector shape the perspectives of youth and other prospective workers in terms of staying in and investing in rural areas?