Date of Graduation
Master of Science in International and Development Economics (MSIDEC)
College of Arts and Sciences
This paper tests the hypothesis that agricultural households engage in intermittent wage labor as a way to smooth consumption in the face of idiosyncratic shocks to agricultural income. Using data on agricultural households from the Tanzanian LSMS-ISA National Panel Survey and global commodity price data as a source of plausibly exogenous variation, the sensitivity of wage labor to farm income shocks is estimated. The idiosyncratic shock to post-harvest income is estimated by incorporating pre-harvest information, including local farm-gate prices as instrumented by global commodity prices. The results show that households are more likely to select into wage labor and work more hours in response to negative income shocks. Positive income shocks are shown to have a weakly negative effect on selection into wage work and hours worked. This response may help to explain the lack of an observed relationship between consumption and income shocks if wage labor can be thought of as an informal insurance mechanism which allows households to effectively smooth their consumption.
Davis, Dustin, "Consumption Smoothing and Labor Supply Allocation Decisions: Evidence from Tanzania" (2015). Master's Theses. 142.