Labor And Productivity Growth

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Non-farm businesses play a significant role in the rural economy, and its relative contribution to household employment and income continues to grow in the African continent (Haggblade et al., 2010; Costa and Rijkers, 2012; Fox and Sohnesen, 2016). In this research, Heckman two-step selection procedure was employed to investigate the effect of non-farm activities on household total income. The first stage is the estimation of bivariate probit model and marginal effects for participation in non-farm activities. The second stage estimation outcomes based on heckman two-stage selection procedure are reported in Table 4. As expected, engagement in non-farming business activities has direct impacts and stimulates their overall income at (P ≤ 0.01) level of significance. Keeping other factors constant, this implies that the annual overall income of households who undertake non-farm businesses increased by 1.007 Ethiopian Birr than that of non-participants.

Thus, non-farm labor increases household total income. This outcome is in line with findings of Gebreyesus, (2016), Astatike and Gazuma, (2019) who suggested that, families that participate in non-farm employment have higher total income as compared to those with one source of income. Farm households pursue non-farm work for multiple reasons, such as raising income, mitigating exposure, improving well-being and consumption. Assets ownership, households’ characteristics, institutions and social capital determine the level of earnings from non-farm businesses (Ashley and Carney, 1999; Camey, 1999; Barret et al., 2000; de Janvry and Sadoulet, 2000). Evidence from Egypt has suggested that non-farm activities amount to nearly 60% of total income and play an essential role in the livelihoods of vulnerable households. These rural diversification strategies have contributed meaningfully to reduce income disparities. In Ghana, poverty alleviation is linked to growth in non-farm sectors that absorbed the extra agricultural labor from the farming sector (Canagarajah et al., 1998; Adams, 1999).

On the human capital side, educational attainment shapes employment opportunities, earnings and sustainable livelihood. The coefficient of households’ educational status are negative and statistically significant at (P ≤ 0.01) probability level. This shows that the likelihood of participating in non-farm livelihood activities decreases for rural people who have any or less school background, and this leads to a loss of 13 Ethiopian Birr in their overall income. Fundamentally, the higher the education level, the higher the income. Better-educated employees have higher earnings compared to those with low levels of literacy. Evidence from Mexico has shown that, the level of literacy is positively correlated with household total income (de Janvry and Sadoulet, 2000).

This study further suggested that high level of education facilitates the access to higher pay-offs of non-farm employment. Education determine people’s earning potential and resource accumulation that can improve their livelihoods (Suryadarma and Suryahadi, 2009). Low level of literacy and educational attainment leads to high incidence of poverty (Barnes and Lord, 2013, Connelly et al., 2014). Despite progress in access to education, nearly 60% of people from the age of 15-24 years in Sub-Saharan Africa do not go beyond primary school education and they work in the agricultural sector. They experience challenges associated to their socioeconomic status. Besides, the 10% with secondary school education are in household enterprises whilst the better-educated are employed in the wage sector (Betcherman and Khan, 2015; Fox and Filmer, 2014).

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The results from second stage estimation indicated that being a male contributed to earning additional 35.3 Ethiopian Birr and improving household total income at (P ≤ 0.01) significance level. This implied that, female headed-households in Ethiopia generally do not have access to higher payoff activities that could enable them to sustain their livelihoods. Lanjouw (2001) reported that women are more employed in “residual” activities with earnings below the market rate in El Salvador. Thus, women’s earnings from non-farm activities are one-third lower than men. Some regions in Sub-Saharan Africa dominated by a patriarchal system and providing small or no place for women in the society, have rural women who cannot inherit because of the interpretation of customary inheritance rules. Typically, these women are “pushed” to negotiate or even pay to access productive resources like land, water and forest, often owned or controlled by men. In many cases, this leads to losses because they are obliged to make payments in kind with part of their crops. In addition, landowners can cancel their access rights at any time. Generally, these rural women are less likely to undertake well-paid rural diversification activities.

This adversarial gender-based effect suggests labor market and income inequalities between men and women. Young women are further marginalized as a result of social norms that restrict them and their employment choices (Filmer and Fox, 2014). Pregnancy, parenting, including sets of behaviors and beliefs shared by members of a society or group of people prevent young women from building up their technical know-how and abilities. These social values impose occupational segregation that limit the number of possibilities, and resources for young women (Bertrand and Crepon, 2014; Filmer and Fox, 2014). Young men in SSA tend to have higher chances of participating in jobs with low numbers of joblessness compared to young women (Betcherman and Khan, 2015). The sexualization of socio-cultural identities that impose roles dishearten rural women from participating actively in economic activities. Female headed-households need to be coached and supported with financial facilities to own their economic businesses that can empower them to participate in more lucrative non-farm activities. To promote female headed-household’s role in rural non-farm business activities, their meaningful contribution must be recognized since the percentage of women unable to read and write is very high. Free and better-quality education can reduce wage gap and, empower women to diversify by widening the opportunities available to them. In the Philippines, women are more likely to obtain non-farm employment than men and this partly explains the higher educational attainment of girls (Quisumbing et al., 2004). Conditional transfer programs set for women in the household, is a successful means to improve the education, health and nutrition of children and women (Quisumbing and Pandolfelli, 2010).

Age has a negative and significant influence (P ≤ 0.01) on households’ annual overall income. Most youth in Sub-Saharan African countries reside in rural areas and small towns. They are vulnerable, less educated and experience many challenges, particularly for stable and lucrative work that can enable them to achieve a standard of living. They often work either in farming sectors, or are self-employed but with low earnings. Those with basic educational attainment are underemployed earning survival incomes with no profits or security that dwindles productivity (Betcherman and Khan, 2015). Moreover, in most countries, there are no financial services and innovations in rural finance designed exclusively for the youth which can encourage investment in both farm and non-farm sectors (Filmer and Fox, 2014). Meanwhile, Sub-Saharan Africa is witnessing youth bulges. Its annual growth forecast stands at 3.9 million of young people over several decades with further expansion in a year by 5.2 million inhabitants from 2025-2030 in the continent (Lam, 2014).

Thus, the size of youth cohorts translates into disappointing prospects in a competitive job market, rise of part-time work and increasing unemployment rates. Failures in hours worked and in wage rates both trigger the slump in young people’s wage income. Youth in Sub-Saharan Africa are twice marginalized due to its passive links with the labor market than the general population (Filmer and Fox, 2014). Youth who are not able to secure their preferred jobs end up working in the informal economic sector with lower wages and limited savings or usually depend on their families for survival. Deferred entry into the labor market shrinks the period income streams of young unqualified workforces. This situation causes income inequality and social exclusion. Africa’s expanding workforce can be a crucial resource in the worldwide marketplace. Over the next decade, the vast majority of young population will work on family farms and Household Corporation. With a low dependency ratio, Africa’s youth bulge can create the space for savings, investment, and stimulate sustainable economic growth.

Promoting the efficiency and productivity of youth and household non-farm business activities in rural regions may be a catalyst for growth and development of the formal sector (Filmer and Fox, 2014). Youth participation in agriculture will depend on the sustainability and profitability of family farming. The lack of enforced social welfare system in addition to the correlation between high growth rates of the youth population and unemployment is a call for development actors to improve the youth labor market and promote the distribution of dynamic resource, labor and productivity growth.

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Labor And Productivity Growth. (2022, February 21). Edubirdie. Retrieved April 17, 2024, from
“Labor And Productivity Growth.” Edubirdie, 21 Feb. 2022,
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