Barriers to rural households’ participation in low-skilled off-farm labor markets: theory and empirical results from northern Ethiopia

Promotion of low-skilled off-farm rural labor market participation can be an important strategy to improve livelihoods and food security of the poor in developing countries. This paper investigates rural farm households’ participation in low-skilled off-farm labor markets with disaggregate data from a survey of 400 households in Tigray, the northern highlands of Ethiopia. Adopting Heckman’s two stage approach, we examined households’ decisions to participate or not in markets by probit model in the first stage and level of participation by ordinary least squares procedures in the second stage. The results show that households’ decision to enter into a labor market significantly depends on the characteristics of the households such as sex, age of the household heads and labor endowments in the households. Similarly, the level of participation in labor markets measured by the amount of off-farm wage income depends on labor endowments in the households and the place where the households are located. Since cash constrained rural households do not find themselves advantageous to participate in off-farm labor markets, the reduction of cash constraint is the major policy implication of the paper. This holds true in general for all cash constrained rural households in developing countries. Similarly, the empirical results in the paper suggest removal of locational barriers to access labor markets. This helps them to earn off-farm income. It is necessary to eliminate (or at least reduce) obstacles for rural households to enter into a market of off-farm wage earning activities. This holds true in general for all rural households in developing countries. This paper is therefore expected to contribute to frame appropriate policy that promotes participation in low-skilled off-farm rural labor markets in developing countries where many rural households are not only poor but also low-skilled.