Differential human capital and structural evolution in agriculture

The growth of market capitalism and the technological advances of the last two centuries underlie the relentless process of structural change in agriculture. Substantial occupational migration out of farming and geographical migration from rural to urban areas is a characteristic of most, if not all, economies in the 20th century. The process of rural‐urban migration, and the resulting urban problems have received considerable attention. The fate of the residual farm population has received less scrutiny and is less well understood. In the United States we observe considerable farm poverty, increasing farm‐size inequality, and a disturbing decay of rural communities. For the last half century, the problem of low farm incomes has been perceived as a farm problem amenable to solution by appropriate farm policy. In this paper, a model is proposed which suggests that farm poverty and inequality are inevitable consequences of a rural‐urban migration process in which two types of human capital play a fundamental role. General human capital determines a person's expected nonfarm income, while farming‐specific human capital determines his/her productivity in farming. It is argued that inadequate human capital combined with positive rural‐urban migration cost, positive farm technology adoption costs, and inelastic demand for farm output, can explain persistently high levels of farm poverty, and increasing farm size inequality. The model suggests that traditional farm policies are inappropriate. Programs that directly address the problems of inadequate human capital are advocated.