On the intersectoral migration of agricultural labor

Labor is the single most important factor in determining national income. As economies grow, agricultural labor declines as a share of total labor and converges to a level of 2 or 3 percent. Off-farm migration facilitates the development of nonagriculture, but historically the process spans decades. The authors argue that the pace of the process is a fundamental outcome of a dynamic equilibrium based on expectations of lifetime earnings and the cost of migration. The authors present an empirical model of the determinants of intersectoral migration. One fundamental determinant is income differences across sectors. As such, migration should stop when income differences reach a certain level. The authors provide a method of measuring the level at which intersectoral migration will cease. While there are credible reasons for a permanent difference to exist between sectoral incomes, the authors find no empirical evidence of a permanent wedge.