Land Market Restrictions, Women's Labour Force Participation and Wages in a Rural Economy

Date01 October 2017
Published date01 October 2017
©2017 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd.
doi: 10.1111/obes.12159
Land Market Restrictions,Women’s Labour Force
Participation and Wages in a Rural Economy*
M. Shahe Emran† and Forhad Shilpi
IPD, Columbia University, 11308 Taffrail Ct, Reston, VA 20191, USA (e-mail: shahe.
DECRG, MC3-305, World Bank, 1818 H Street NW, Washington DC, 20433, USA
We analyse the effects of land market restrictions on the rural labour market outcomes for
women. The existing literature emphasizes two mechanisms through which land restric-
tions can affect economic outcomes: collateral value of land, and (in)security of property
rights. Our analysis focuses on an alternative mechanism where land restrictions increase
costs of migration out of villages. Testable prediction of collateral channel is that wages
remain unchanged, but the effects on labour force participation are ambiguous. Insecu-
rity of property rights in land reduces labour force participation, but leaves wages undis-
turbed. In contrast, if land restrictions workprimarily through higher migration costs, labour
force participation increases, while wages decline. For identification, we exploit a natural
experiment in Sri Lanka where historical malaria played a unique role in land policy. We
provide robust evidence of a positive effect of land restrictions on women’s labour force
participation, but a negative effect on female wages.The empirical results thus contradict
a collateral or insecure property rights effect, but supports migration costs as the primary
I. Introduction
There is a growing literature in economics that analyses the effects of restrictions on land
markets on household choices and outcomes. The literature has focused on the effects
of restrictions on alienability of land on the credit access, labour supply, agricultural
productivity, and savings (see, e.g., Field, 2007), and on the effects of uncertainty about
property rights on incentives to invest (see, e.g., Besley, 1995; Jacoby, Guo and Rozelle,
2002; Goldstein and Udry 2008).
The effects of insecure property rights to land on women’s labour market are well-
recognized in the literature; reforms that improve security of property rights can lead to
higher labour supply by women, as they do not need guard labour (Field, 2007). Policy
JEL Classification numbers: O10, O12, J31, J61.
*We would like to thank two anonymous referees, editor Beata Javorcik, Larry Katz, Steve Pischke, Toan-Do,
Leo Feller, Michael Clemens and seminar participants at Center for Global Development for helpful discussions and
Chaitri Hapugalle for help with historical data.
748 Bulletin
restrictions on sales and rental may also destroy the collateral value of land, as the banks
cannot claim the land in case of a default (de Soto, 1989).
The literature has, however, so far largely neglected another important channel through
which restrictions on land market transactions may affect women’s labour force participa-
tion and wages in a village: rural-urban migration.1As emphasized recently by Hayashi
and Prescott (2008) and Emran and Shilipi (2010), sales and rental restrictions increase
costs of migration substantially as a household loses the income stream from the land
when it decides to leave the village. We explore the implications of the migration channel,
both theoretically and empirically, and contrast it with the predictions of the more widely
recognized collateral and property rights channels.
To understand the workings of the migration mechanism, we develop a model where
women’s traditional role in producing home goods determines her labour force participa-
tion, and the land market restrictions imply that a household loses the land in the event of
out-migration from the village.2In our model, higher migration costs reduce migration and
lower the equilibrium wage rate in the local labour market.The effects of land restrictions
on women’s labour force participation, however, depends on whether the women who stay
back in the village at the margin are more or less likely to participate in the labour force
compared to an average rural woman before land restrictions. We show that the women
who are induced to stay back in the village by land restrictions are less productive in home
goods production than an average village women, and thus are more likely to participate
in the labour force and labour market.
The two alternative mechanisms also yield sharp predictions: both collateral effect and
insecure property rights leave the equilibrium wages undisturbed, assuming that the village
labour market is integrated with the urban labour market through migration, and urban
wage is exogeneous. The village wage rate is pinned down by the migration equilibrium
condition, and demand and supply shifts in the local labour market due to insecure rights,
or due to a lack of collateral only affect the labour force participation and employment
in this case.3Insecure rights imply lower labour force participation, as women stay back
home to provide guard labour.When land restrictions result in loss of collateral and reduce
credit availability, labour demand can be lower. But as noted above, this can only affect
the labour force participation and employment in an integrated labour market, if migration
costs are not affected.4Also, destruction of collateral value can increase labour supply
because of income effect without altering the wage rate in an integrated labour market.
These contrasting predictions, especially regarding wages, allowus to discriminate among
alternative mechanisms.
To identify the effectsof land market restrictions on women’slabour force par ticipation
and wage, we take advantage of a historical natural experiment in Sri Lanka where the
1We use ‘urban’as a short for any destination which includes international migration.
2The standard model of labour-leisure trade-off can be seen as a special case of our model where the home goods
production function is CRTS: one unit of labour produces one unit of leisure.
3The village is a net exporter of labour to the urban market, and behaves similar to a small open economy, and
cannot influence the price of its exports, urban wage.
4If the village labour market is segmented, then a demand shift due to loss of collateral moves the wage rate and
employment in the same direction; both either increase (higher demand) or both go down(lower demand). Our results
contradict this.
©2017 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd

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