Agricultural Composition and Labor Productivity

Abstract

Labor productivity differences between developing and developed countries are much larger in agriculture than in non-agriculture. We show that crosscountry differences in agricultural composition explain a substantial part of labor productivity differences. To this end, we group agricultural products into two sectors that are differentiated only by capital intensity. As the economy develops and capital accumulates, the price of labor-intensive agricultural goods relative to capital-intensive agricultural goods increases. This price change drives a process of structural change that shifts land and farmers to the capital-intensive sector, increasing labor productivity in agriculture. We illustrate this mechanism using a multisector growth model that generates transitional dynamics consistent with patterns of structural change observed in Brazil and other developing countries, and with crosscountry differences in agricultural composition and labor productivity. Finally, we show that taxes and regulations that create a misallocation of inputs within agriculture also reduce the relative labor productivity.

Outcome of capital investment on labor productivity in agriculture sector of Ukraine

“…Also, they assessed if in the U.S., labor in the ag sector was misallocated and if productivity was mis measured. Blanco and Raurichy (2018) also paid attention to the differences in labor productivity between developed and developing countries, which is substantially larger in agriculture than in non-agriculture. They argued that structural change within agricultural sectors explained part of these differences and considered two agrarian areas that are differentiated only by the capital intensity.…”