Bargaining power, wages and employment

Casual agricultural labor is widely considered to be a vocation of last resort for those who have no other means of supporting themselves. Yet, this group constitutes 30 per cent of all rural households (nearly two-thirds of whom live in absolute poverty) and accounts for about 60 per cent of total unemployed person-days in India. The importance of economic outcomes in agricultural labor markets for the problem of poverty and unemployment is thus obvious. However, there remain substantial gaps in our understanding of the key processes of wage and employment determination which govern the fate of this stratum, one of the most deprived groups in the country.

This study offers a new perspective on the analysis of agricultural labor markets in India. While it is well-known that rural labor markets are typically unorganized, Dr Datt argues that the existence of various forms of quasi cooperative behavior (which often characterize village-level labor markets) points to the relevance of a tacit collective bargaining framework for analyzing market outcomes.

The author develops a new bargaining model of the casual labor market at the village level. The model determines the wage rate, the level of employment and the employers' profits, and is consistent with the key stylized features of agricultural labor markets, including the co existence of wage variability and unemployment. Of particular interest is the author's emphasis on incorporating gender disparity in the bargaining process to explain the persistence of a gender wage gap.

Empirical estimates of the model based on longitudinal data for ten villages in five different agro-climatic zones in India provide evidence of significant inequality in the relative bargaining powers of employers and laborers. The results also show that such asymmetric power exerts a significant quantitative influence on distributional outcomes in the village economy.