Center for Effective Global Action

We use a unique dataset on daily labor-market outcomes for Indian casual workers to study labor reallocation between agricultural and non-agricultural activities within rural areas. We use workers who switch sectors during a period of one to two weeks to estimate an agricultural wage gap that cannot be due to selection on unobservable characteristics. Workers can obtain 21 percent higher wages by taking non-agricultural jobs, many of which are available inside their villages. Surveys reveal that non-agricultural jobs are less preferred because they are harder, suggesting that the agricultural wage gap in rural areas might reflect a compensating differential.