30
ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE Off-farm income and labor markets in rural Ethiopia PRELIMINARY RESULTS Fantu Bachewe, Guush Berhane, Bart Minten, and Alemayehu S. Taffesse IFPRI ESSP Addis Ababa, Ethiopia 1

Off-farm income and labor markets in rural Ethiopia

  • Upload
    essp2

  • View
    329

  • Download
    3

Embed Size (px)

Citation preview

Page 1: Off-farm income and labor markets in rural Ethiopia

ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE

Off-farm income and labor markets in rural Ethiopia

PRELIMINARY RESULTS

Fantu Bachewe, Guush Berhane, Bart Minten, and Alemayehu S. TaffesseIFPRI ESSP

Addis Ababa, Ethiopia

1

Page 2: Off-farm income and labor markets in rural Ethiopia

2

1. Introduction • Development of well-functioning labor markets crucial for economic

growth and livelihood opportunities, especially for youth• Rural wages strongly linked with poverty reduction; important to

understand these labor markets• Ethiopia’s economy is changing fast but unclear how important the

off-farm economy and labor income is in rural areas• Purpose of the presentation: - How important is the rural off-farm economy?- What are the associates with off-farm income and rural income

diversification?- Are rural wages changing?- What are drivers and implications of that change?

Page 3: Off-farm income and labor markets in rural Ethiopia

3

2. Data

• CSA: Wage data collected during monthly price survey (120 markets covered in the country)

• Agricultural Growth Programme (AGP) survey: fielded in May 2011 (information on 2010/11 agricultural season); collected in 4 major regions in the country;

• Other datasets used: 1/ large teff (2012) and coffee (2014) surveys; 2/ FTF survey (2015); 3/ ERSS (2014)

• In all surveys, information collected on agricultural crop production, livestock, agricultural wage and non-wage income, and enterprise income for 12 months preceding the survey

• Crop income is value of output less variable costs; livestock income is value of livestock sold and slaughtered and value of livestock products, minus variable costs; enterprise income is gross enterprise income minus variable costs

Page 4: Off-farm income and labor markets in rural Ethiopia

4

3. Off-farm income in rural areas • Crop income as source of rural income overwhelming (71%) • Wage income (10%) as important as livestock income • Agricultural wages twice as important as non-ag. wages• Enterprise income: 8%

All Tigray Amhara Oromiya SNNP0

20

40

60

80

100

Income sources in rural areas (AGP)

Crop Livestock Agricultural wageNon-ag. wage Enterprise

%

Page 5: Off-farm income and labor markets in rural Ethiopia

5

3. Off-farm income in rural areas • ERSS (national representative) paints a rather similar picture • Differences: 1/ Livestock more important than in AGP areas; 2/ Wage

and enterprise income less important than in AGP areas; 3/Wage/enterprise income seemingly higher in high potential areas

All Tigray Amhara Oromiya SNNP0

20

40

60

80

100

Income sources in rural areas (ERSS)

Crop Livestock Casual laborSalaried workers Enterprise

%

Page 6: Off-farm income and labor markets in rural Ethiopia

6

3. Off-farm income in rural areas • Look at female/male youth/mature headed household differences• Youth-headed households depend more on off-farm income• Female-headed households depend more on off-farm income

Male-youth Female-youth Female-mature Male-mature0

20

40

60

80

100

Income sources inrural areas (AGP)

Crop Livestock Agricultural wageNon-ag. wage Enterprise

%

Page 7: Off-farm income and labor markets in rural Ethiopia

7

3. Off-farm income in rural areas • Off-farm income and wage income especially important for the poor• Enterprise income shares higher for poorest and richest, reflecting

different enterprises (brewing/liquor versus agricultural trade resp.)

Quintile I Quintile II Quintile III Quintile IV Quintile V0

2

4

6

8

10

12

14

20

30

40

50

60

70

80

90

Livestock Wage, agricultural Wage, non-agriculturalEnterprise Crop

Cont

ributi

on o

f non

-cro

p in

com

e (%

)

Cont

ributi

on o

f cro

p in

com

e (%

)

Page 8: Off-farm income and labor markets in rural Ethiopia

Crafts17%

Trade-grains16%

Trade-livestock11%

Trade-non agricultural10%

Milling1%

Tella (local ale)5%

Araqi (local liquor)

19%

Enjera/Dabbo (bread)

3%

Other19%

Type of business enterprise engaged, (%)

3. Off-farm income in rural areas

Page 9: Off-farm income and labor markets in rural Ethiopia

9

3. Off-farm income in rural areas • Associates of diversification; run tobit model with share of income in

off-farm as dependent variable; and diversification index Diversification index

Coeff. St.errorAge of household head (years) -0.003*** 0.000Education of head 0.018*** 0.005Household size 0.011*** 0.003Purchased at least one input on credit 0.026* 0.014Land quality index -0.006** 0.002Tropical livestock units -0.012*** 0.002Travel time to nearest 50K town (mns) -0.0002*** 0.000Distance from Addis Ababa (00 KMs) -0.014* 0.006

Page 10: Off-farm income and labor markets in rural Ethiopia

10

3. Off-farm income in rural areas • Major results on diversification:1. Younger heads of households are more likely to be associated with

off-farm income (especially agricultural wages and enterprise income)

2. Education associated with more enterprise income and non-ag. income

3. Gender link. Women make up 1/3rd of hired labor; men 2/3rds.4. More and better quality agricultural assets associated with less

diversification5. Distance to cities an important associate of non-farm income.

Households 100 kms farther from Addis have 11% lower share of off-farm income.

Page 11: Off-farm income and labor markets in rural Ethiopia

11

3. Off-farm income in rural areas • 18% off-farm income in rural Ethiopia:- Small compared to other African countries- Small compared to Asia and Latin-America

Africa Asia Latin-America0

10

20

30

40

50

60

Local non-farm Migration income

%

Page 12: Off-farm income and labor markets in rural Ethiopia

12

4. Agricultural wage labor • Hired agricultural wage labor: 7% of all labor• Relatively more important in Tigray and SNNP

All Tigray Amhara Oromiya SNNP0

20

40

60

80

100Hired labor in crop production

Family labor Hired labor

%

Page 13: Off-farm income and labor markets in rural Ethiopia

13

4. Agricultural wage labor • Importance of hired labor varies by task• In teff, less hired labor during production; most at harvest and

afterwards

Tilling Input use Weeding Harvest Post-harvest Threshing0

20

40

60

80

100

Labor by crop activity

Family Hired Exchange

%

Page 14: Off-farm income and labor markets in rural Ethiopia

14

4. Agricultural wage labor • Associates of agricultural wages:1. Time of year: compare to land preparation, 13 % lower at planting,

12% higher at weeding; 17% higher at harvesting 2. Gender: men earn 8% more3. Age: older people earn less (0.2% less per year extra)4. Remoteness: 100 kms away from Addis reduces wage by 7%5. Poverty in the district: The higher the poverty, the lower the wage6. Regions: higher wages in Tigray and Amhara

Page 15: Off-farm income and labor markets in rural Ethiopia

15

4. Agricultural wage labor • Associates of hiring in of agricultural wage laborers (tobit):1. Household characteristics- Bigger households use less hired labor- Higher dependency ratio lead to more hired-in labor- Educated households use more hired labor 2. Characteristics of the farm- Larger farms use more hired-in labor (1 hectare more; share 12% up)- Quality land associated with more hired labor3. Location- Higher in Tigray than in other regions- Poorer districts use more hired labor- Distance to Addis: More used if closer to Addis

Page 16: Off-farm income and labor markets in rural Ethiopia

16

4. Agricultural wage labor • Labor arrangement in teff differ by remoteness• Monetization when less remote; in more remote areas, more reliance

on exchange labor instead of hired labor

020

4060

80sh

are

(%)

0 50 100 150distance to Addis (Birr/quintal)

95% CI family labor95% CI wage labor95% CI exchange labor

Page 17: Off-farm income and labor markets in rural Ethiopia

17

4. Agricultural wage labor • Average agricultural wages on average 1.27 USD per day (in AGP

zones); however significant variation • Compared to other (Asian) countries, wages significantly lower; 0.95

USD higher in Nepal; 1.59 USD higher in Bangladesh; 1 USD higher in Myanmar

05

1015

20

Obs

erva

tions

(per

cent

)

0 2 4 6 8Agricultural wages (USD/day)

Nepal (2010)

Myanmar (2004)

Bangladesh (2010)

0 3 6 9 12

USD/day

Page 18: Off-farm income and labor markets in rural Ethiopia

18

5. Rural wages - changes • Rely on CSA price data from 2004 to 2015• Use different ways of converting/deflation (exchange rate; CPI)• Wages over times higher in nominal USD in 2015 compared to 2004

Jul-0

4Ja

n-05

Jul-0

5Ja

n-06

Jul-0

6Ja

n-07

Jul-0

7Ja

n-08

Jul-0

8Ja

n-09

Jul-0

9Ja

n-10

Jul-1

0Ja

n-11

Jul-1

1Ja

n-12

Jul-1

2Ja

n-13

Jul-1

3Ja

n-14

Jul-1

4Ja

n-15

Jul-1

50.00

0.50

1.00

1.50

2.00

2.50

3.00Wages in USDWages in US CPI deflated real USD

Wag

es in

nom

inal

and

real

USD

Page 19: Off-farm income and labor markets in rural Ethiopia

19

5. Rural wages - changes • Urban and rural wages deflated by the CPI• Between 2004 and 2015: Real rural wages increased by 46%; real

urban wages increased by 72%

Jul-04

Feb-05

Sep-05

Apr-06

Nov-06Jun-07

Jan-08

Aug-08

Mar-09Oct-

09

May-10

Dec-10Jul-1

1

Feb-12

Sep-12

Apr-13

Nov-13Jun-14

Jan-15

Aug-1520

25

30

35

40

45

50

GCPI deflated-ruralGCPI deflated-urban

Real

wag

es in

Dec

. 201

1 pr

ices

Page 20: Off-farm income and labor markets in rural Ethiopia

20

5. Rural wages - changes• Regional differences for rural wages deflated by the CPI• Least changes in SNNP; biggest improvement in Tigray

15

20

25

30

35

40

45

50

55 Tigray Amhara

Oromiya SNNP

Page 21: Off-farm income and labor markets in rural Ethiopia

21

5. Rural wages - changes • Urban and rural wages deflated by the Poor People’s CPI• Between 2004 and 2015: Real rural wages increased by 46%; real

urban wages increased by 52%; lower than with other methods

Jul-04Jan

-05Jul-0

5Jan

-06Jul-0

6Jan

-07Jul-0

7Jan

-08Jul-0

8Jan

-09Jul-0

9Jan

-10Jul-1

0Jan

-11Jul-1

1Jan

-12Jul-1

2Jan

-13Jul-1

3Jan

-14Jul-1

4Jan

-15Jul-1

520

25

30

35

40

45

50PP-GCPI deflated-ruralPP-GCPI deflated-urban

Real

wag

es in

Dec

. 201

1 pr

ices

Page 22: Off-farm income and labor markets in rural Ethiopia

22

5. Rural wages - drivers

Look at the drivers for wage changes: • Estimate the following regression:Ln (real wage) = a + b lnY + e• Growth-unskilled real wage elasticity

Real… Zones where woreda pop. <

30 k

Zones where woreda pop. <

50 k

Rural areas Non-urban regions

GDP 0.22 0.18 0.15 0.12

Agricultural GDP

0.24 0.20 0.17 0.15

Manufacturing GDP

0.19 0.16 0.14 0.12

Industry GDP 0.17 0.14 0.12 0.10

Services GDP 0.15 0.12 0.11 0.09

Page 23: Off-farm income and labor markets in rural Ethiopia

23

5. Rural wages - implications

1. Poverty

Correlation of real wages and poverty head count index0

2040

6080

Pov

erty

hea

d co

unt i

ndex

10 20 30 40 50 60

Real wages, December 2011 prices

95% confidence intervalPredicted poverty head count index

Page 24: Off-farm income and labor markets in rural Ethiopia

24

5. Rural wages - implications

1. Poverty • Estimate the following regression (at zonal level; 4 years):Ln (Poverty) = a + b ln real wage + e• A 1% increase in poverty is associated with a 0.26% - 0.35% decrease

in wages

OLS FE

Model 1 Model 2 Model 3 Model 1 Model 2

Log real wages

0.13 -0.26 -0.49 -0.30 -0.35

Bold: significant at 5% or 10%

Page 25: Off-farm income and labor markets in rural Ethiopia

25

5. Rural wages - implications

2. Increasing use of herbicides

20022003

20042005

20062007

20082009

20102011

20122013

0

4

8

12

16

Herbicides imports (millions USD)

Page 26: Off-farm income and labor markets in rural Ethiopia

26

5. Rural wages - implications

2. Increasing use of herbicidesHerbicides is a substitute for weeding; rapidly taking off in Ethiopia

01

23

log(

valu

e he

rbic

ides

/ha)

0 2 4 6Log(weeding labor/ha)

95% interval correlation

020

4060

8010

0%

of f

arm

ers

0 50 100 150Transport costs to Addis (Birr/quintal)

95% CI herbicides 201295% CI herbicides 2002

Page 27: Off-farm income and labor markets in rural Ethiopia

27

5. Rural wages - implications

3. Mechanization - Higher wages provide incentives for mechanization in agriculture- In Ethiopia, mechanization is still rather low; In FTF survey, estimated:1. 9% of farmers use some form of mechanization2. 5% in plowing; 3% in harvesting; 2% in threshing3. Strong threshold effect (Berhane et al., 2016)

Page 28: Off-farm income and labor markets in rural Ethiopia

28

5. Rural wages - implications

4. Impact of off-farm income on modern input use - Off-farm income might lead to relaxation of credit constraints in

period of input needs- Study association of off-farm income and modern inputs with AGP

data through probit model- Find slightly significant (10%) and positive association between

fertilizer use and off-farm income: households that had off-farm income were 7% more likely to use chemical fertilizer

- No association with improved seeds and agro-chemicals

Page 29: Off-farm income and labor markets in rural Ethiopia

29

6. Conclusions

• Major findings:1/ Off-farm income makes up 18% of total income; Wage income is 10% of total income, as important as livestock income2/ Off-farm income (26% of their income) and agricultural wage income especially important for the poorest (13% of their income); push factors for diversification still relatively more important 3/ Wages significantly lower than in other countries; however, rural wages are rapidly increasing; 50% higher in real terms in 2015 compared to 2004; especially improved agricultural performance has contributed to that change4/ Implications of wage changes on poverty and agricultural production practices (more use of herbicides)

Page 30: Off-farm income and labor markets in rural Ethiopia

30

6. Conclusions

• Implications:1/ Low wages have been an asset for the attraction of labor-intensive industries. That might be changing and Ethiopia might lose that edge. Ensure that the youth will upgrade skills towards higher labor productivity2/ Push for the adoption of labor-saving technologies; important that Ethiopia implements pro-actively policies that allow appropriate technologies at low costs3/ Ensure flexible labor markets so that people can benefit from these opportunities