Are non-farm jobs better for rural workers? A Panel Data Analysis of Earnings Gaps in Vietnam

Type Working Paper
Title Are non-farm jobs better for rural workers? A Panel Data Analysis of Earnings Gaps in Vietnam
Publication (Day/Month/Year) 2016
In developing countries, agricultural employment accounts for a huge component of rural
workforce. Literature have shown that the low agricultural productivity and great
dependence of farm production on uncertain natural conditions are driving forces to low
labour income in the agricultural sector which in turn results in high poverty incidence in
rural area. Thus, a special attention is paid to the identification of rural pathways out of
poverty. As summarized by McCulloch et coll. (2007), the main pathway out of poverty
would be associated with increases in the productivity of rural poor, whether these increases
are realized in farm job, in rural non-farm activity or by rural-urban migration. Traditionally,
agricultural growth has been the main ingredient in rural development strategies in many
countries. However, it is shown that the reliance on pro-poor agricultural growth as the main
path out of poverty today is facing challenges due to a combination of factors leading to
increase of risk, uncertainty and raising costs and/or lower return to agricultural investment
(Dorward et coll., 2004). Scholars have for long emphasized the need for diversified
approaches to fighting rural poverty in order to take the heterogeneity of the rural population
into account (Jonasson, 2009). It is widely considered that rural non-farm employment
(RNFE) is a potential path out of poverty as it can provide a source of income for rural
workers, particularly those who are facing difficulties of securing income due to
underemployment, insufficient of cultivable land. Additionally, non-farm employment
appears to bring about better earnings than do agriculture jobs. Although this feature of nonfarm
employment has long been recognised as being among the most robust findings in
comparative international labour economics (Hertz et coll., 2009), not much empirical
evidence has been offered on it. This lack of evidence has sometimes been pointed out in the
literature. For instance, Lanjouw (2008) argued that even though average earnings in the
rural non-farm sector are higher than in agriculture, it is unclear whether income prospects
are systematically better in non-farm activities than in agriculture. Winters et coll. (2008)
also indicated that while agricultural jobs generally do pay less, there is still a considerable
overlap between the farm and non-farm wage distributions in most countries

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