ESSAYS ON AGRICULTURE AND INEQUALITY

Abstract

In developing economies, wages in agriculture are significantly below those of other sectors and wages within each sector can be greatly unequal. This dissertation explores the forces behind these disparities.

Chapter 1 studies the large gap in wages between agriculture and the rest of the economy. Using a panel dataset 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.

Chapter 2, which is co-authored with Niklas Engbom and Christian Moser, studies the forces behind the inequality decline that took place in Brazil between 1996 and 2012. Using administrative linked employer-employee data, high-dimensional worker and firm fixed effects models are fitted to identify the sources of this decline. Compression in firm effects accounts for 45 percent of the total decline and compression in worker effects accounts for 24 percent. Half of the decrease in firm pay differences and a fifth of the decline in heterogeneity between workers are explained by observable characteristics. During this period, firm and worker characteristics became more dispersed, but a marked decline in returns to these variables lead to an overall inequality decline. This chapter concludes that changes in pay policies, rather than changes in firm and worker fundamentals, played the largest role in Brazil's inequality decline.

Chapter 3 studies the sources of cross-country differences in agricultural GDP per worker and average farm size, and suggests the lack of access to reliable savings assets as a potential driver of this variation. Motivated by recent micro evidence showing negative-return savings for the poor and large cross-country variation in intermediate input usage and farm size, a model linking financial underdevelopment, land misallocation, and agricultural productivity is presented.