Factors Determining Rural Labour Supply: A Micro Analysis

• Author: MUHAMMAD ZAHIR FARIDI and A. B. BASIT

Abstract. Rural development is the heart of the country’s economic development. Rural development is attained by providing employment opportunities to rural labour force. The aim of the present study is to explore the factors which decide about rural labour market participation. Primary source of data is used for analysis which is gathered by the authors. Binomial Logit regression method is employed to estimate the determinants of rural labour supply model. Findings indicate that Education, Economic Capital Index, and Social Capital Index have discernible impact on rural labour supply. In addition, it is observed that number of livestock and size of land holdings have negative and significant impact on rural labour force participation. The study has suggested that rural infrastructure should be developed and educational facilities should be improved.

I. INTRODUCTION

Pakistan is basically an agricultural country and agriculture is the biggest sector of the Pakistan’s economy. Almost 66 percent of the Pakistan’s population is residing in rural areas of Pakistan. Agriculture is the main source of their livelihood. One fourth of Pakistan GDP is being contributed by agriculture sector. Labour force participation rate is vital indicator of supply of labour. Labour market behavior is assessed by labour force participation rate. Out of total labour force, 43.61 percent work force is employed by agricultural sector.1 In addition, this sector regularly supplies workers to the manufacturing sector. Rural development is the heart of country’s economic development. It is not only sufficient to raise the agriculture productivity but it is necessary to provide employment opportunities to rising rural population by enhancing their incomes.

Further rural development takes place by providing with necessary facilities like better houses, paved streets, health and education services, improved socio economic infrastructure. In nutshell, the socio economic condition of rural people may be uplifted by attaining the goals of increased productivity, employment opportunities and income redistribution.

Despite the above discussed importance of rural and agriculture sector, there is still a large portion of rural labour force which remains unemployed and under employed in rural areas. The main purpose of the present study is to explore the factors which directly or indirectly influence the rural labour force participation.

The rest of the analysis is planned as follows: The section II reviews the important studies on labour force participation both at national and international levels. Theoretical framework regarding labour market participation is provided in the section III. In the section IV, we have developed labour supply model and estimation method. Sources of data and interpretation of variables are described in the section V. The section VI discusses the results of study. The last section offers concluding remarks of the study in section VII.

II. STUDIES REVIEWED ON LABOUR MARKET PARTICIPATION

There is an immense of studies granting to debate on labour market conditions in rural or agriculture areas available both in the developed and developing economies. Some of the important studies are reviewed at the national and international level. There are some studies which illustrate the emergence of rural labour markets functioning and collapse of institutional impediments while other empirical findings support the hypothesis that there still exist imperfections in the labour markets.

Benjamin and Brandt (1997) and Liu et al. (1998) identified that there is negative relationship between the size of farm and labour force participation, showing labour market barriers.

Meng (2000) and Yang and Zhoou (1998) explored that off farm labour force participation was discouraged by institutional obstacles or barriers like land tenure systems and perceptive quota system.

Naud and Serumage-Zake (2001) provided the estimates of the labour market participation and unemployment in South Africa’s North West province. The determinants were estimated using probit model. They used data collected from three sources like the 1993 Caldru Survey, the 1995 CSS Survey and survey conducted by the authors in 1997. The analysis found that education, location, sex and family structure were significant factors of unemployment. The study concluded that the unemployment was a severe challenge in rural areas of South Africa.

Renkow (2003) estimated labour market model at the county level for North Carolina. He used the county level data considering the years 1980 and 1990. Three stage least square (3SLS) method employed for empirical analysis. The findings showed that changes in real wages and housing prices seemed to be more vital factors of adjustment in labour market in metro counties than in rural counties. In addition, labour force growth was significantly influenced by the changes in employment in nearly counties.

Bowlus and Sicular (2003) and Wang et al. (2007) showed that there existed non-divisibility between labour demand and supply decisions of farm workers and thus imperfections in the labour markets.

Maurer-Fazio (1999) and Li et al. (2005) reported that the off farm labour markets would be functioning well because the returns of off farm labour were almost equal over many alternative employment opportunities and off farm incomes were significantly determined by education.

Kimhi (2004) discussed the role and importance of agriculture sector in the development of rural areas. The study used data on rural semi-coopera- tive villages. The data collected from four sources. Census of Population in Israel was the main source of data for the study. OLS technique was used for estimation analysis. The study concluded that the impact of importance of agriculture or rural development was mixed.

Mduma and Wobest (2005) analyzed the factors that affect the rural labour force participation. The study used the data from Household Budget Survey (HBS) in Tanzania in the year 2000-01. Truncated regression and negative binomial regression techniques were employed for estimation. The findings of the study indicated that level of education, land availability, access to economic centers and credit turned out to be the most crucial factors in determining the rural labour force participation and the share of the labour income in total cash income.

Glauben et al. (2008) contributed to the continued discussion over Chinese labour force participation in rural labour market during the last twenty years. They used the household data from the Zhejiang province during the period 1986-2002. Multinomial Logit technique was used to analyze empirically household, farm and regional characteristics influencing the probability of the farmers’ participation...