Underemployment in Agriculture and the Industrial Wage Rate

Students of the underdeveloped economies have to explain why the earnings of labour are often substantially higher in industry than in agriculture even after allowance is made for the higher cost of living in the towns; and this despite the absence of any strong trade union organisation and the presence of a large and mobile surplus of labour both in agriculture and in the urban districts around the factories. One answer has been given by Messrs. Bauer and Yamey, that, in subsistence economies the extended family system (or analogous arrangements) provides for a form of collective . . . production and consumption . . . which in effect establishes a reserve price for [the unemployed person's] labour .2 This hypothesis, while it shows how there will be a floor to the wage rate given by the income per capita in agriculture, does not show how the earnings of industrial labour can be substantially higher than this level. In fact, in many underdeveloped countries earnings of labour in industry are not merely higher than the per capita income in agriculture (i.e., average income for all members of a family-employed, underemployed and unemployed) but also than what one would expect to be the transfer price of labour under conditions of full employment-viz., the income per earner. Nor does the above hypothesis explain how earnings-even of unskilled labour-in factories are higher than those of the mass of low-wage labour found in occupations other than factory industry in the same urban area. The purpose of this article is to draw attention to a factor which has not been noticed in the literature, but which may be quantitatively of great importance in some economies in setting wages in industry at a level higher than in agriculture. It is essentially connected with the fact that the wage rate sufficient to induce families to move from agriculture to industry is substantially higher than that needed to attract individual members of rural families. Certain conclusions about the structure of the labour market in underdeveloped countries and about the hypothesis of the perfectly elastic supply curve of labour to non-agricultural activities can be derived by way of corollary from the existence of the different types of migrant labour with different supply prices

Agricultural economics · Agriculture · Archaeology · Economics · Geography · Labour economics · Macroeconomics · Underemployment · Unemployment · Wage · Wage rate · Economic theories and models · Economic Theory and Policy · Taxation and Compliance Studies

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