Wages, Prices and Agriculture: How Can Indian Agriculture Cope with Rising Wages?

Abstract

Rapid economic growth in India has resulted in rapidly rising rural wages. Using the framework of variable profit functions and household level data, we study econometrically the wage impacts on crop agriculture. Rising wages are associated with decreasing crop output, other things being equal. Crop prices would need to increase by 80% in the short run to offset the effect of an agricultural wage increase, or by 140% in the short run to offset rural non-farm wage increases as well. However, because non-land farm assets respond positively to the non-farm wage, in the medium term this increase is reduced to 74%. During the period of 1999/00-2007/08, growth in non-land farm assets, the labour force, education and technology has easily compensated for the wage increase, and probably also for the accelerating wage growth. Focusing on growing these shifter variables is a much better policy option than raising prices that would come at the expense of consumers or taxpayers.

Input Demand and Output Supply Elasticities of Coarse Cereals in India: A Translog Profit and Sure Approach

“…Although these are considered better than the CD form, but are based on restrictive assumptions. Some authors have used the translog cost function approach to develop input demand and output supply elasticities [15,16,17]. Studies have also used the profit function to estimate factor demand and output supply parameters [12,13,18].…”

Enabling Smallholder Prosperity through Commercialization and Diversification

“…S. Bhalla & Roy, 1988), capital market imperfections (Feder, 1985) and unobserved heterogeneities such as climatic variations and quality of management are considered (Eastwood et al, 2010). In countries like India, where wages are on the rise, there has also been a lowering of off-farm opportunity costs, eroding the labor advantage of small farms (Binswanger & Singh, 2017). In this section, we look at agricultural development in India in the context of smallholder production to assess the nature of growth and regional disparity trends in the context of the Green Revolution.…”

“…Simultaneously there has been a growth of non-farm wages as well resulting from the growth of other sectors and rural social programs, especially the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) (Binswanger-Mkhize, 2013;Gulati et al, 2014), leading to an increase in farm level opportunity costs. Binswanger and Singh (2017) observe that rising non-farm wages have pulled family labor out of farms as off-farm opportunity costs decrease. They also note that non-farm wage increase tends to pull family labor out of the agricultural sector and not hired labor, as they may be older with little education.…”

“…Mechanization will play an essential role in improving agricultural productivity, adjusting for rising wages and reduction of drudgery in farming. In the process of structural transformation, different countries have addressed wage increases through mechanization replacing wage labor, farmers exiting agriculture for nonfarm sectors, diversification to higher value crops to increase income, state expenditure in productivity increasing technologies and raising food prices to support farm incomes (Binswanger & Singh, 2017). However, the major challenge for small farms with credit constraints and lower than optimal size for mechanization, as it is not scale-neutral, remains.…”

Agricultural Technology for Increasing Competitiveness of Small Holders

“…Women face significant labor productivity constraints, and often conservation agriculture may increase womenʼs workload (from weeding and other labor-intensive activities) and reduce the burden on men (Kaczan, Arslan, & Lipper, 2013). Rental market for farm machinery is a fast growing service (Binswanger & Singh, 2017), and women's self-help groups (SHGs) jointly owning and leasing out machines are successful models that can be seen in many locations. Therefore, productivity-enhancing technologies and interventions need to be gender-neutral and in some cases gender-specific (Carrand & Hartl, 2010).…”