The Agricultural Wage Gap: Evidence from Brazilian Micro-data

Produced by: 
International Monetary Fund
Available from: 
January 2017
Paper author(s): 
Jorge A. Alvarez
Topic: 
Agricultural - Natural Resource Economics
Year: 
2017

A key feature of developing economies is that wages in the agricultural sector are significantly below those of other sectors. Using a panel data set on the universe of formal workers in Brazil, I use information on workers that switch sectors to decompose the drivers of this inter-sector gap. I find that most of the gap between sectors is explained by unobservable differences in the skill composition of workers, as opposed to differential pay of workers with similar skills. The evidence speaks against the existence of large short-term wage gains from the reallocation of workers out of agriculture and favors recently proposed Roy models of inter-sector sorting as drivers of lower average wages in agriculture. A calibrated model of worker sorting can account for the wage gap observed in 1996 Brazil and a share of both the wage gap decline and the diminishing worker participation in agriculture observed during the period between 1996 and 2013.

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