Working Paper: NBER ID: w23253
Authors: Joan Hamory Hicks; Marieke Kleemans; Nicholas Y. Li; Edward Miguel
Abstract: Recent research has pointed to large gaps in labor productivity between the agricultural and nonagricultural sectors in low-income countries, as well as between workers in rural and urban areas. Most estimates are based on national accounts or repeated cross-sections of micro-survey data, and as a result typically struggle to account for individual selection between sectors. This paper uses long-run individual-level panel data from two low-income countries (Indonesia and Kenya). Accounting for individual fixed effects leads to much smaller estimated productivity gains from moving into the nonagricultural sector (or urban areas), reducing estimated gaps by over 80%. Per capita consumption gaps are also small once individual fixed effects are included. Estimated productivity gaps do not emerge up to five years after a move between sectors. We evaluate whether these findings imply a re-assessment of the conventional wisdom regarding sectoral gaps, discuss how to reconcile them with existing cross-sectional estimates, and consider implications for the desirability of sectoral reallocation of labor.
Keywords: Agricultural productivity; Labor productivity; Economic development; Panel data; Worker selection
JEL Codes: J43; O13; O15; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Individual fixed effects (C23) | Estimated productivity gains from moving to non-agricultural sectors (O49) |
| Individual fixed effects (C23) | Agricultural productivity gap in wages (J31) |
| Individual fixed effects (C23) | Urban productivity gaps (R12) |
| Worker selection (J29) | Apparent productivity gap (O47) |
| Sectoral movement (O24) | Productivity gaps (O49) |