Moving out of Agriculture: Human Capital, Mobility Frictions, and Labor Allocation by Cohort (with Tommaso Porzio)

Abstract:
What explains labor reallocation out of agriculture? We propose an accounting framework that leverages observable variation across cohorts to study the role of human capital accumulation. We model a dynamic overlapping generations economy where heterogeneous individuals choose whether to stay in or move out of agriculture, subject to mobility frictions. The model shows analytically that labor reallocation within- and across-cohorts pins down the relative role of human capital vs. sectoral prices/productivities in labor reallocation. We apply the framework to micro data from 59 countries. We document novel empirical patterns on labor reallocation by cohort and use them, through the lens of our model, to show three main results: (i) human capital explains as much as 50% of labor reallocation, on average; but (ii) it does not explain why some countries have faster reallocation than others; (iii) mobility frictions play at most a minor role. Furthermore, we validate our cohort approach through a natural experiment, showing that the INPRES school construction program in Indonesia led to reallocation out of agriculture.