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Applications (Applied Micro) Seminars

Seasonal liquidity, rural labour markets and agricultural production

Kelsey Jack (Tufts University), joint with Günther Fink and Felix Masiye

Monday 30 April 2018 12:00 - 13:30


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About this event

Many rural households in low and middle income countries continue to rely on small-scale agriculture as their primary source of income. In the absence of irrigation, income arrives only once or twice per year, and has to cover consumption and input needs until the subsequent harvest. We develop a model to show that seasonal liquidity constraints not only undermine households’ ability to smooth consumption over the cropping cycle, but also affect labour markets if liquidity-constrained farmers sell family labour off-farm to meet short-run cash needs. To identify the impact of seasonal constraints on labour allocation and agricultural production, we conducted a two-year randomized controlled trial with small-scale farmers in rural Zambia. Our results indicate that lowering the cost of accessing liquidity at the time of the year when farmers are most constrained (the lean season) reduces aggregate labour supply, drives up wages and leads to a reallocation of labour from less to more liquidity-constrained farms. This reallocation reduces consumption and income inequality among treated farmers and increases average agricultural output.

This series is part of the CEP's Labour Markets programme.