The Agricultural Productivity Gap in Europe

For fifteen European countries over the 1970-2004 period we establish that there is a large and persistent agricultural productivity gap, the ratio of labor productivity in non-agriculture to that in agriculture. Correcting for under-reporting of self-employment income in both agriculture and non-agriculture significantly reduces the measured agricultural productivity gap. For countries with information on years of school and experience at the sector level, we also find substantially higher human capital in non-agriculture than in agriculture. Our findings suggest that measured labor productivity differences between agriculture and non-agriculture in European countries are not an indicator of resource misallocation, but possibly an artifact of mismeasurement of value added and sectoral differences in human capital.