Wage and employment determination in agricultural labour markets in India

Abstract

The thesis is concerned with the problem of wage and employment determination in the (casual) agricultural labour markets of India. It is argued that the extant theories of wage determination poorly accord with the stylized facts of the Indian situation. An alternative perspective on agricultural labour markets is developed, where wage determination at the village level is interpreted as the outcome of tacit collective bargaining between village labourers and employers. It is argued that cooperative behaviour, necessary to support such collective bargaining, can often be sustained through the operation of certain informal social sanctions against wage cutting behaviour. With an asymmetric Nash framework, a theoretical model of the village-level market for agricultural labour is developed, which simultaneously determines the agricultural wage rate, the level of employment and the employers' profits. The model is consistent with the existence of involuntary unemployment, while also explaining variability of wages. In the extended version of the model, male and female labourers are introduced as separate bargaining parties. The extended model provides a possible explanation for the existence of gender wage (and employment) disparities. Both the basic and extended models are econometrically estimated for ten villages in central, south and west India, using data collected by the International Crops Research Institute for Semi-Arid Tropics (Hyderabad). Bargaining powers of employers', male and female labourers (interpreted as the coefficients on their net gains from agreement) are estimated. The results show significant inequalities of bargaining power between employers and labourers, and between male and female labourers. Simulations based on the estimated models indicate that the observed inequalities of bargaining power are a quantity decisive influence on wage, employment and profit outcomes in the village labour markets.