Managing Economic Insecurity in Rural El Salvador: The role of asset ownership and labor market adjustments

Rural households often rely heavily on short-term readjustments in labor supply between wage and self-employment in farm and non-farm activities as an essential strategy to protect consumption and the value of productive investments against unexpected shocks and to take advantage of changing economic opportunities. The efficacy of such coping strategies, and hence a household's vulnerability to shocks, may in turn be affected by that household's ownership of land or other assets. This paper employs a two-round panel survey of 494 rural households in El Salvador to study the impact of a 1997 weather-related downturn in economic activity and agricultural labor demand on household incomes and welfare. Examining the changing pattern of household labor supply and poverty, reveals that the loss of wage labor hours was a primary determinant of the rise in poverty in this period, and that landless agricultural laborers were particularly vulnerable. Panel regression analyses suggest that households that owned even small amounts of land or other productive assets were better able to protect the marginal return to household labor in the downturn year. The results lend support to the view that in response to shocks, households fall back on farm and non-farm self-employment activities were productivity was determined by their ability to intensify the use of land and other owned assets. Controlling for other factors, ownership of land and other assets also helped households to maintain children's school enrollments.