Rural Shadow Wages and Youth Agricultural Labor Supply in Ethiopia: Evidence from Farm Panel Data

The majority of the youth in Ethiopia live in rural areas where agriculture is the main source of livelihood. Using gender- and age-specific values of agricultural labor return (shadow wages), we systematically analyse trends, patterns and prospects of youth’s labor supply in agriculture across space (farm locations). We also analyse whether the household male and female youth members’ agricultural labor supply is responsive to economic incentives. We investigate these using shadow wages estimation techniques applied to farm-household panel data collected during the 2010/11 and 2014/15 agricultural seasons. The results indicate that trends and patterns of the youth’s involvement in agriculture vary across gender and farm work locations, and so do their labor returns. Yet the on-farm participation for youth members is declining across time irrespective of gender, whilst their participation in off-farm activities is increasing. The findings also suggest that changes in agricultural shadow wages matter for the youth’s involvement in the sector, but their impact differs for male and female youth. The results are consistent after controlling for individual heterogeneity, sample selection and instrumenting for possible endogeneity. In addition, we find that youth’s intentions and actual engagement in agricultural production vary greatly. This suggests that the frequent narrative of youth disengaging from agriculture may be a result of methodological flaws or data limitations. Taking into account the intensity of the youth’s involvement in family farm, own farm and off-farm work, the results challenge the presumption that youth are abandoning agriculture, at least in agricultural potential areas of Ethiopia. Instead the youth’s involvement makes an important economic contribution to the operation of the family farm. Therefore, it is necessary to invest in agricultural development to enhance productivity and employment opportunities; and structural transformation that addresses the imperfections and rigidities in labor and other input markets to make agriculture more attractive to youth.