Unemployment, Structural Change and Globalization

M. Pianta and M. Vivarelli

UNEMPLOYMENT AND DEVELOPMENT 2: RURAL AREAS
by M. Pianta

1. Introduction

Nearly half of the global labour force works in agriculture. Since the beginning of the 1980s, global agricultural production has increased at a faster rate than the agricultural labour force, and in developing regions agricultural production has been growing at least twice as fast as in the developed regions between 1980-1992. Moreover, the global agricultural labour force is expected to strongly shrink beginning with the next decade, reflecting decreasing population growth rates and the shifting of labour towards manufacturing and services (ILO 1996). However, this continuing structural transformation of the sector is not associated to rapidly improving employment and living conditions for rural workers. Poverty is still widely diffused and even rising in some parts of Africa and Latin America (UNDP 1997).

The problem of unemployment in developing economies is conceptually very different in urban-industrial and rural-agricultural areas. Urban unemployment relates to problems of appropriate growth strategies in the framework of an increasingly integrated world economy where relatively high labour productivity levels are required (see "Unemployment and Development 1: Industrialized Areas"). On the other hand, unemployment in rural areas takes the form of serious under-employment of either wage labourers or self-employed farmers, with very low productivity levels. This results in an often dramatic rural poverty, which can be considered the most effective indicator of actual rural unemployment. Urban and rural unemployment, however, interrelate strongly, especially in developing countries with a large share of the labour force concentrated in rural areas. Inadequate rural development limits its labour absorption capacity and may lead to rural-urban migration with negative effects on labour productivity in urban modern sectors. Conversely, economic growth based on urban modern sector development may be constrained if rural areas fail in their role as supplier of food or do not contribute as a source of demand for the production of modern sectors. Thus, rural unemployment has to be addressed in the frame of a developing country’s overall growth strategy.

A necessary distinction has to be made between the different models of agricultural production which are associated to specific patterns of land ownership and forms of employment:

• subsistence agriculture: in agricultural production carried out for simple subsistence purposes, that is for immediate consumption, land ownership tends to be comunal or of small plots. The main form of employment includes the landless seasonal wage labourer and poor farmers, which represents a large share of the rural population particularly in South Asia and Sub-Saharan Africa, where the subsistence model dominates large parts of agricultural production.

• domestic market production: in this model, the production of cash crops prevails, leading to a specialisation in cultivation for local or national markets for food needs of for other agricultural commodities. However, farmers frequently produce also for own consumption needs. Land ownership patterns may be differentiated, with varying size and productivity levels, and require constant or seasonal wage labour. Accordingly, wage labour assumes a larger share of agricultural employment. In East/South East Asia, where this model is dominating, wage labourers frequently maintain a small subsistence activity.

• export-oriented production: in the case of cash crop production of staple foods for world markets - such as coffee, tee, cacao, grains, fruits and meats -, the dynamics of the world market rule. Land ownership is dominated by large national holdings or transnational corporations. Employment is waged, with large parts of seasonal workers, and productivity tends to be high. This model is prevailing in many Latin American countries

 2. The evolution of agrarian employment

During the last four decades, different strategies for integrating rural areas in national models of economic development have been experimented. At the origins of development planning in the 1950s, strategies were strongly biased towards urban modern sector growth in order to compensate for insufficient "natural forces" for growth in the rural areas (see Escobar 1992). Rural development was regarded as a secondary issue and the object of eventual spill-over effects of industrial development. Rural employment support in this concept was basically related to some form of direct aid to sustain subsistence-oriented self-employment. In many Sub-Sahara African and some Latin-American countries this concept of exclusively urban based development still prevails.

The subsistence model has given way, in the 1970s, to the "Green Revolution" concept which ventured to make agricultural activities a productive factor for national development. It became widely accepted that agriculture can be an engine of growth in the early stages of economic development in countries which still have a large share of their labour force concentrated in rural areas. The successful transition of a developing economy to higher levels of productivity in the modern sectors depends heavily on an integrated development strategy which, parallel to industrial development, emphasises economic growth associated to employment and income generation in the agricultural sector (see Singh-Tabatabai 1993). Rising labour productivity in the agricultural sector provides more purchasing power, which increases the demand for goods and services from other sectors, thereby stimulating overall economic growth. It also improves rural living conditions, acting effectively as buffer against unsustainable rural-to-urban migration and imbalances of the labour market which is generally associated with decreasing productivity and incomes.

Rural development in this strategy is based on productivity growth through mechanisation and industrialisation of agricultural production which may have different intensity depending whether it is oriented at production for the domestic markets or for export. While the domestic market strategy has been widely employed in East/South East Asian developing countries in the 1960s and has been adopted, in the 1980s, also by many South Asian countries, the export market strategy prevailed in many Latin American countries. Both orientations are associated to higher shares of wage employment in agricultural production and to sectoral diversification of rural employment, because of increasing requirements for services and industrial goods.

Lately, it has been objected that rural development strategies based exclusively on the creation of larger economic units and fast productivity growth have often contributed to a growing pauperisation of rural people and to aggravated problems of malnutrition and hunger. Production for markets - associated to specialisation in cash or export crops, rigid lay-out of fields and pre-set cultivation routines - often contrasts sharply with the more varied peasant farming schemes, in which production for subsistence and for the market are carefully balanced, according to social and ecological criteria (see Shiva 1989). Increasing poverty would contradict a rural development strategy based exclusively on market-orientation and could suggest a model in which subsistence production can find an appropriate place.

High levels of poverty persist especially among the part of landless agricultural wage labourers which have been uprooted from subsistence-oriented smallholdings by the introduction of cash and export crop production, and whose global share in the agricultural workforce is increasing (ILO 1996). However, there are large differences between and within developing regions. It is therefore important to analyse how the different rural development orientations - subsistence, domestic market orientation and export orientation - integrate into overall development strategies and contribute to the diminuition of rural-urban development disparities. This can be measured on their respective effects on rural employment and income generation, and on the diversification into non-agricultural rural employment which they are able to stimulate. Both are key challenges for rural development.

3. The forms of rural employment

In development theory, the relation between economic growth and employment is conceived not only in terms of intersectoral shifts of the labour force, but also in terms of changes in the mode of employment. In the modern sectors, economic growth is strongly associated to the growth of regular full-time wage employment and the corresponding decline of self-employment, resulting in higher productivity and income of workers. The integration of the agricultural sector in this development scheme supposes that rural modernisation follows the same pattern. There are, however, important structural differences between the sectors which make the integration of agriculture in this employment scheme difficult:

• agricultural commodities normally do not require the same amount of continous labour input over the whole year. Though the mechanisation and industrialisation of agricultural production has raised the share of wage labourers considerably, this is associated largely to seasonal and occasional wage employment. With full-time wage employment set at 260 working days per year, agricultural wage labourers are estimated to work, on global average, only 170 days per year (ILO 1996). Underemployment is hence a regular and significant feature among agricultural wage workers. Monoculture and one harvest per year which dominate the production for export markets, tend to accentuate this characteristic. Diversified crops and multiple harvest which are associated to local and domestic markets cushion the effect of the natural cycle of a single crop. The sustained productivity growth which accompanies the agricultural production for export markets may thus be inversely related to income generation;

• it results from the above that, in the agricultural sector, formal wage employment and self-employment cannot be considered as mutually exclusive or their duality a constraining factor for development. The persistence of a dual, formal and informal, economy may reduce overall productivity growth. It is, however, a condition to stabilize rural incomes. Country studies show that export-oriented agriculture has significantly helped in employment generation and, by raising returns on labour relative to staple crop farming, in the alleviation of poverty, but that this link is much weaker where employment is only temporary. It follows that the largest probability of a significant drop in poverty and a raise in incomes lies in a combination of cash or export crop farming and self-eemployment or off-farm employment (Rodriguey-Smith 1994);

• while in the modern urban economic sectors the size of economic units has a positive impact on wage employment creation, in the agricultural sector labour absorption is much lower on large farms than on smaller farms. Land ownership patterns in countries with export-oriented agriculture favours the concentration in large holdings and the marginalisation of small holdings. This not only negatively affects opportunities of employment creation, but significantly adds to the supply of labour entering the rural labour market, since more and more small farmers become landless workers or are cultivating marginal holdings which cannot ensure their survival and forces them to seek wage employment on a casual basis to supplement their income. Land distribution does not follow the rule of demand and supply. Land is limited and its distribution follows political decisions. Agriculture is therefore a sector in which market rules do not prevail without conditions.

On the basis of this remarks, the empirical evidence - though highly incomplete - indicates that the different rural development models have considerable effects on rural-urban development disparities in terms of income and employment status. In Sub-Saharan Africa which is extremly dominated by subsistence agriculture and has a very low share of rural wage workers (except South Africa) the incidence of poverty is much higher in rural than in urban areas, and the incidence of poverty among agricultural wage labourers is higher than among the rural population in general. The same holds true for Asia in which subsistence agriculture is combined with domestic market orientation in agriculture, accounting for a higher share of rural wage workers. The incidence of poverty in rural as compared to urban areas is, however, much lower in East/South East Asia, which embarked early on domestic market orientation, than in South Asia. Adverse results are shown for Latin America, which is dominated by export-oriented agriculture accompanied with a large share of agricultural wage workers. Here the incidence of poverty is lower among wage workers than among the rural population in general, though total poverty incidence for both is high (ILO 1996).

For the number of countries for which evidence is available it can be resumed that the combined strategy of subsistence and domestic market orientation appears to be more appopriate to mitigate rural-urban development disparities than either a subsistence or an export-oriented strategy alone. This may, however, depend on the amount of cultivable land and different food security perspectives. The model has worked well in East/South East Asia, partly because of the coincidence with rural outmigration allowing for the redistribution of scarcely available land and requiring food security policies. This may be similar for many African countries, but different for large parts of South America where problems of availability of land are not that pressing. What is interesting in this context, however, is that this model relates to enhanced requirements for policy to design an integrated development model and that it is not the result of market-driven development. It suggests that the outlook for rural employment is influenced by a set of structural issues, historical factors and entrenched social problems rather than by simplistic views of forces of demand and supply, and this plays a critical role in determining the underemployment and productivity of rural laboureres.

4. Diversification into rural non-farm activities

Rural-urban development disparities can be considerably mitigated by rising shares of rural non-farm employment, which allows for better rural labour absorption and, hence, the increase of average rural incomes. Moreover, diversification of output and employment is often closely linked to agricultural growth and rising demand from agriculture, acting as a strong agricultural growth multiplier. When demand linkages from rising agricultural incomes are the main driving factor behind rural diversification, the productivity of non-farm employment tends to be rather high, superating the productivity of agricultural production and improving the conditions for further diversification. This has been the case for China where the share of non-farm rural labour has increased considerably between 1985-92. On the other hand, when labour is pushed out of agriculture into non-farm activities, as in Pakistan, than this tends to imply lower productivity and wages than in agriculture. This kind of "distress diversification" effects, however, only a share of the non-farm rural labour force, mostly women (ILO 1996). In most cases, rural diversification is positive for employment opportunities as well as for productivity and wages.

The share of non-farm workers in the rural labour force differs widely across developing regions. In Africa, it accounts for only about 10-20 per cent and takes the form of additional, mostly female employment during low agricultural seasons. The subsistence-oriented agricultural employment model is unable to generate the necessary agricultural income for rural non-farm diversification. Thus, rural non-farm diversification does not affect urban-rural development disparities to a significant degree.

The situation is different in the case of market oriented agriculture which registers huge increases in rural non-farm activities, substituting for agricultural employment. In Latin America with its mainly export-oriented agricultural model, the share of the non-farm labour force in the total rural labour force increased from 23.9 per cent in the 1970s to 29.1 per cent in the 1980s. Even higher shares are typical for the domestic market-oriented agricultural economies in Asia which reach 30 to 40 per cent, with peaks of close to 50 per cent in East/South East Asia. China and India which concentrate more than half of the worlds agricultural labour force have a share of 22,3 percent and 21,8 per cent respectively, with strong increases in the last ten years.

One of the main reasons why countries with domestic market-oriented agricultural schemes show greater diversification is that this model depends on small rural towns for marketing, which become reference points for the location of rural industries. Small rural towns are normally better provided with basic infrastructures, particularly electricity and roads, and with basic education systems than housing conglomerates in rural Latin America acting just as labour transition points for large farms which maintain their own infrastructures, including airports and power generation.

5. Policy Issues

A number of issues which are actually debated in international organisations will influence the conditions of national governments to provide for rural employment creation:

• Combining food security with growth of market production: the output of agricultural production will have to increase to satisfy growing global food needs, if demographic trends cannot be more significantly reversed. Global food security requires that large schemes for industrialised staple food production are supported and that agricultural productivity increases also in regions where natural conditions do not lend themselves to capital intense cultivation. This implies that public programmes for land irrigation and transport will create additional employment in non-agricultural rural sectors. On the other hand, food security diminishes in many developing countries with agricultural export-oriented production which might lead to new schemes of combining domestic and export-oriented agricultural production in a more sustainable way.

• Raising agricultural productivity levels: A continuing need exists to expand agricultural productivity with greater investment, new technologies, land improvements and appropriate ecological measures. This would lead to increasing requirements of skilled labour and regular full employment in the agricultural sector, thus reducing underemployment and poverty. Attention should be paid, however, to the social and ecological consequences of higher productivity methods, in order to avoid increased income or environmental imbalances in rural areas.

• Liberalisation of world agricultural markets: with the increasing trade liberalisation for most commodities, goods and services during the 1990s, an intense policy debate focusses on the inclusion of agricultural products into existing global trade and related regimes, especially in the frame of the World Trade Organisation. Supporters argue that agricultural trade liberalisation would result in a shift in the terms of trade in favour of agriculture. It would correct long-standing urban biases against agriculture, such as low-pricing, impediment of rural diversification through unbalanced subsidies for certain agricultural goods and unfavourable exchange conditions between industrial and agricultural products, resulting in increased agricultural income. The trade liberalisation for agricultural goods would especially favour countries with export-oriented rural production structures, but could have also positive effects for smaller farms serving domestic markets. However, small and marginal farmers are handicapped to fully benefit from improved terms of trade, because of limited access to credit, irrigation, productive inputs and trade extension services.

• Appropriate role for state intervention: the mentioned debates relate to a larger debate on market reform programmes in the frame of the pressure by the International Monetary Fund to reduce government intervention and to lower public expenditures in order to provide for macroeconomic stability. In combination, this might shift rural development policies decisively toward export-oriented schemes based on large farms and from considerations of food security and internally balanced development to considerations of commodity production and external payment balances. Particularly smaller farmers would be weakened by cut-backs of government support services to the rural sector, which would aggravate existing handicaps to benefit from trade and strengthen the position of large farmers and capital intensive agro-business. Imbalances resulting from trade liberalisation and reduced government spenditures, resulting in increases of rural unemployment or underemployment, could be addressed in the frame of land and tenancy reform measures, targeted to land distribution towards the disadvantaged rural sections and seasonal wage labourers to secure higher output growth and poverty alleviation. Such a reform would need to be supported by public rural infrastructure programmes and subsidised credit schemes.

Empirical evidence

Unemployment in rural areas of developing countries takes the form of underemployment and very low annual productivity, leading to rural poverty, which can be considered the most effective indicator of rural unemployment. Rural development planning during the last three decades has been concentrating on the creation of larger and more productive agricultural units in order to enable the exploitation of new farming and seeding technologies. In this model, the reduction of rural poverty is related to increases in the share of agricultural wage employment.

Table 1 shows the structure of employment in agriculture, differentiating between small farmers, wage workers and unpaid family workers. Wage employment is found in almost all developing countries, though its share in total agricultural employment varies considerably among and within regions, with the highest shares in Latin America and the lowest shares in Sub-Saharan Africa. This reflects the domination of agricultural production for export markets in Latin America and the highly subsistence-oriented agriculture production in Sub-Saharan Africa. Asia takes a middle position between thes two poles, reflecting its mostly domestic-market oriented agricultural production structure. However, the picture varies strongly within the developing regions.

 Table 1: The structure of employment in the agricultural sector

Few data are available on trends in the share of wage workers in agricultural employment. The observations in Table 1 suggest that wage employment increases in Latin America at a higher rate than the agricultural labour force while, conversely, it decreases in Asia, along with a moderate growth of the agricultural labour force.

An increasing share of agricultural wage workers does not indicate, however, a declining incidence of poverty. While estimates of trends in rural poverty are available for a larger number of countries, poverty data disaggregated by occupational status are scarcely available. Table 2 provides information on rural poverty by occupational status for selected countries from all developing regions and for two recent periods.

Table 2: Poverty in rural areas and among agricultural wage labourers

The table excludes a number of significant countries for which less data are available, especially China and India. However, what emerges from the available data is that all sample countries registered a decline in the proportion of the rural population below a nationally defined poverty line, except three Latin American countries (Mexico, Guatemala, Venezuela). The decline of the incidence of poverty is also true for agricultural wage laboureres in two Asian countries (Indonesia, Philippnes), but it is less than for the rural population as a whole. This difference in the incidence of poverty between the total rural population and its part of agricultural wage labourers seems to follow different regional patterns. In Asia and Africa, agricultural wage labourers display consistently higher rates of poverty than the rural population in general, whereas in Latin America, with the exception of Chile and Mexico, the reverse seems to be true. The difference in the incidence of poverty between the total rural population and its part of agricultural wage labourers is highest in Egypt, where agricultural wage labourers display a rate of poverty three times that of the whole rural population.

High levels of poverty among agricultural wage labourers are a source of concern since their share in the rural labour force is increasing in virtually all countries. Of the 12 countries for which data on the incidence of poverty among agricultural wage labourers are shown for the 1990s, half display an incidence rate above 49 per cent, suggesting that on average one in two agricultural wage labourers is in poverty.

In the entry on "Unemployment and development 1: Industrialized Areas", Table 2 showed how overall economic growth rates compared to average growth rates of the agricultural sector for the two periods 1980-90 and 1990-95. These data show that in all developing regions except Latin America agicultural growth rates have slowed down. For the whole of developing regions, the slow-down in the agricultural sector is more accentuated than in the whole of national economies; there are, however, important regional differences. In East/South East Asia agricultural growth decreased while total growth increased strongly. For most regions GDP grew faster than agricultural product in both periods. The fastest increase in agricultural product was found in East Asia and Pacific (pulled by the very high GDP growth rates) and in Middle East and North Africa.

References

 * Statistics and empirical analysis are found in:

FAO 1993, Agriculture: Towards 2010, Rome, Food and Agricultural Organisation

Tabatabai H. and Fouad M. 1993, The Incidence of Poverty in Developing Countries: an ILO Compendium of Data, Geneva, International Labour Office

 UNDP 1997, Human Development Report No.8, Oxford, Oxford University Press

World Bank 1995, World Development Report. Workers in an Integrating World, Oxford, Oxford University Press

 * The relation between economic development and the role of agriculture is discussed in:

Escobar, A. 1992, Planning, in: Sachs, W., Development Dictionary, London, Zed Books

Singh, A. and Tabatabai, H. (eds) 1993, Economic Crisis and Third World Agriculture, Cambridge, Cambridge University Press

Sobhan, R. 1993, Agrarian Reform and Social Transformation. Preconditions for Development, London, Zed Books

 * Analyses of the employment and wage situation in rural areas can be found in:

Egger, P. 1993, Travail et Agriculture dans le Tiers Monde. Pour une Politique active de l’Emploi Rural, Geneva, International Labour Office

Ghose, A.K. 1990, Economic Growth and Employment Structure: a Study of Labour Outmigration from Agriculture in Developing Countries, Geneva, International Labour Office

ILO 1996, Wage Workers in Agriculture: Conditions of Employment and Work, Geneva, Intenational Labour Office

Rodriguez, A. and Smith S. 1994, A Comparison of Determinants of Urban, Rural and Farm Poverty in Costa Rica, World Development Vol. 22, No. 3, Oxford

 * The effects of the "Green Revolution" on rural employment and welfare are discussed in:

Lipton, M. 1989, New Seeds and Poor People, London, Unwin Hyman

Shiva, V. 1991, The Violence of the Green Revolution, London, Zed Books