Rural Shadow Wages and Youth Agricultural Labor Supply in Ethiopia: Evidence from Farm Panel Data


Takalign Sakketa


Research Fellow

University of Bonn

Agricultural economist/development economist, impact evaluation of agricultural investment


Key Takeaways

    How To Apply Insights

    • Invest in rural areas to provide necessities and make them more livable- invest in agricultural value chain and assist youths in becoming agricultural entrepreneurs
    • Take gender into consideration in making agriculture attractive to young people
    • Strengthen human capital in rural/agricultural areas: Formal education and cultural training activities, health, infrastructure
    • Diversify economic activities that compliment agriculture- such as trade, supply, marketing & improve markets for fertilizer and farm land to make them more accessible for young people

    Findings & Research Conclusions

    This study investigates trends and patterns of youth’s labour supply in agriculture using a calculated shadow wage as an alternative to market wages. Shadow wage is a more accurate estimate of labor return and agricultural production in settings where markets are imperfect- such as rural areas.

    Shadow wage can be weakly equated to the productivity of a household or individual.
    Rural wage, labour productivity & economic incentives were used to determine the agricultural supply of individuals. This varied by gender, but overall there is no evidence which suggests that youth on-farm participation is decreasing.


    Youths provide valuable contributions to family level agriculture.
    The perception that young people are not interested in agriculture is not based on evidence, but their participation requires farming to be profitable and training/market opportunities to be accessible.

    Investment in youth participation in agriculture could be a good strategy for economic growth and tackling unemployment in areas where agricultural income is high.

    Research's methodology

    The study is based on household and youth panel survey conducted in Oromia region of households selected for the Ethiopian government’s Agricultural Growth Program (AGP). An econometric approach was applied to the data.


    The estimation of shadow wage makes assumptions, for example that increasing labor supply equally increases productivity/output. In reality this may be non-linear. Furthermore, working hours were self-estimated by participants, so are liable measurement errors

    Shadow wageWage accounting for the marginal product cost of labour (wage per unit of labour)
    Economic incentivesFinancial draws for labour participation, in this case for agriculture
    Household labor supplyAmount of individuals and time a particular household can supply to agriculture

    Reference this research

    Sakketa, T.G. and Gerber, N. (2020), “Rural Shadow Wages and Youth Agricultural Labor Supply in Ethiopia: Evidence from Farm Panel”, Research in Labor Economics, Vol. 48, pp. 61-105.

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