Events

Professor Michael Sposi
Associate Professor of Economics
Southern Methodist University

Across countries, the share of agriculture in value added is less than the corresponding share in employment, and the gap between the two shares diminishes with income per capita. We show the diminishing gap results from systematic differences in the ratio of agriculture to non-agriculture compensation per worker. We further document that this gap is even wider in low-income sub-Saharan African (LISSA) countries than in their non-LISSA peers at similar income levels, reflecting lower land intensity in agriculture production in the LISSA countries. We build and calibrate a general equilibrium model featuring a productivity-dependent distortion that gives rise to differences in labour compensation per worker across sectors. As aggregate productivity increases along with the endowment of capital and land, income per capita rises and household spending shifts away from agriculture due to non-homothetic preferences. In response, heterogeneous workers opt to leave agriculture. During this process the gap between agriculture value added and employment shrinks. In LISSA countries the land endowment is more abundant, agriculture production is more labour intensive, and the economy’s productivity level is lower. These together yield a lower share of agriculture in value added compared to their non-LISSA peers, a wider gap between the value added and employment shares of agriculture, at the same level of income per capita.