Land Consolidation and Rural Labor Markets: Theory and Evidence from Colombia

Abstract

The consolidation of land in large farms is accelerating in many developing countries. This paper studies the implications of land consolidation on rural employment and workers’ welfare. I develop a general equilibrium model of local labor markets that considers both farm and nonfarm labor. Large-farm consolidation affects the demand for farm labor via labor intensity and the nonfarm labor demand through non-homothetic consumption growth. The model shows that consolidation may reduce workers’ income if the pull response in the nonfarm sector is small relative to the shift in farm labor demand. I examine this question in the Colombian setting by assembling a novel dataset and leveraging quasi-experimental variation in the ability of rural counties to respond to a trade shock that changed land use. Regions with an increase in large-farm consolidation experienced a decline in the share of agricultural labor and a sizeable increase in unemployment rates. These findings shed light on the distributional impacts of consolidation across individuals and the potential implications of structural transformation within rural economies.

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Karen Ortiz-Becerra
Karen Ortiz-Becerra
PhD Candidate in Agricultural and Resource Economics