Academic journal article
By Briones, Roehlano M.
Asian Development Review , Vol. 23, No. 1
This paper reviews the literature on rural employment and employment generation. It considers three models of rural employment: neoclassical, dual economy, and dynamic linkages. Evidence favors the third model, which explains rural underemployment in terms of labor surplus, and points to local economic linkages as a means for the rural economy to absorb its own surplus labor. The paper summarizes other patterns particularly in relation to the determinants of rural employment, and enumerates elements of an employment strategy for rural Asia. Two of these elements remain controversial, namely, asset reform and prioritization of agriculture. In some cases both elements prove to be beneficial in terms of generating employment; however the evidence is not sufficiently conclusive for a generalization. Hence the rural employment strategy, while rightfully focusing on the rural economy, should be flexible in terms of specifying the mix and focus of interventions within the sector.
Labor is a factor of production that the poor possess in relative abundance. Reducing poverty entails the provision of decent work opportunities for the poor. As poverty in Asia remains largely a rural phenomenon, employment generation is a key strategy in reducing rural poverty. In the neoclassical model of rural employment generation, labor market allocation is viewed as efficient. Hence, the potential for further employment expansion is minimal. Employment policies may aim at increasing returns from employment through skill formation and promoting technical change; however there is no justification for a special treatment of rural areas. In the dual economy model, the pervasiveness of market failure in the rural economy is recognized. Underemployment is considered as a serious problem; however, the main engine of employment generation is the urban and not the rural economy. The third model, dynamic linkages, likewise recognizes the underemployment problem, but identifies the rural economy itself as the main source of employment. The key to employment generation is the sustained expansion of nonagricultural activities in rural areas.
Each of the three models has dramatically different implications for policy. Identifying the right facts about rural employment is therefore crucial for formulating an employment strategy. The weight of the evidence favors the third view. Based on this and other stylized patterns, one may identify the elements of a rural employment strategy that offers the best prospect for sustained poverty reduction.
This paper synthesizes theoretical and empirical work on the broad theme of rural employment generation. The review is organized around the three different perspectives of the rural labor market. The rest of the paper is organized as follows: section II discusses the three models of rural employment in greater detail. section III compares the evidence for the three models. section IV examines more evidence, highlighting factors that determine patterns of rural employment. section V draws implications for the rural employment strategy. Section VI concludes.
II. MODELS OF RURAL EMPLOYMENT
A. The Neoclassical Model
The neoclassical model assumes that labor markets are flexible and wages clear the market. The economy therefore operates at full employment, where labor is paid its marginal product. As pointed out in Rosenzweig (1988), the neoclassical model may be more relevant to the rural setting, where the ideal of free and flexible markets is more closely approximated. Of course regulation and organized labor are not literally absent in rural areas; in some countries, government regulations do reach rural labor markets (for example, migration restrictions in People's Republic of China [PRC]), and agricultural labor may be unionized (for example, in many plantations). Relatively speaking though, the notion of an unregulated informal sector is highly applicable to the rural economy. …