Moving out of Agriculture: Human C apital, Mobility Frictions, and Labor Allocation by Cohort (with Tommaso Porzio)
Abstract:
What explains labor reallocation out of agriculture? We propose an accounti
ng framework that leverages observable variation across cohorts to study th
e role of human capital accumulation. We model a dynamic overlapping genera
tions economy where heterogeneous individuals choose whether to stay in or
move out of agriculture, subject to mobility frictions. The model shows ana
lytically 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 do
cument novel empirical patterns on labor reallocation by cohort and use the
m, through the lens of our model, to show three main results: (i) human cap
ital 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 validat
e our cohort approach through a natural experiment, showing that the INPRES
school construction program in Indonesia led to reallocation out of agricu
lture.