Key issues and constraints in agricultural labour markets

The review of the empirical literature has also shed light on a series of market imperfections, as well as structural impediments, which often characterise rural labour markets. The high costs of movement which are associated with rural markets, and which may be exacerbated for farm families if the market for land is underdeveloped or inefficient, and the distance between rural settlements and cities entail limitations in the occupation/residential choice of individuals.

In this context, Tocco et al. (2012b) seek to identify and classify the constraints in rural labour markets from both the supply and demand side.

This identification is important as it allows us to highlight the inefficiencies and the failures of labour markets and to understand their potential impact on labour allocation, which becomes essential for policy design.

From the supply point of view, low levels of education, skills, training and experience in agriculture represent an important supply-side limitation which constrains the supply of skilled labour from the agricultural sector and constitutes a barrier for those seeking alternative employment. Not only do poor skills result in low productivity in agriculture, but they also restrict the choice of work that can be undertaken

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in other sectors, and often lead to lower paid, part-time or seasonal work.

Since education has been found to influence entry to the non-farm economy, it follows that low levels of training and transferable skills constrain workers’ ability to take up off-farm work. Therefore, general and specific education, vocational training and work experience affect the mobility costs and influence labour allocation decisions (Macours &

Swinnen, 2005), constituting a significant impediment to labour mobility and therefore to an efficient allocation of labour (Dries & Swinnen, 2002).

Moreover, as emphasised by the European Commission (2006), demographic ageing in rural areas is an important issue, as it reduces the future labour supply of the working age population, which results in lower productivity growth and may hamper economic development. The agricultural sector often employs the less skilled and the elderly who, being less mobile and flexible, stay and work in farming. Where agriculture represents the main employer of labour in rural areas, this effect can be significant. This also leads to an inefficient labour allocation on agricultural holdings as well as to an impoverishment in terms of human capital in comparison to other sectors (Van Herck, 2009).

Particular state pension schemes can influence this demographic. For instance, Pietola et al. (2003) find that higher retirement benefits in Finland during the early retirement programme have accelerated the rate of exit from the sector, particularly of lower income farmers. In Poland, a special pension provision for agricultural workers may have influenced the present structure of keeping the ‘golden’ one hectare to qualify as a farmer.

However, in many of the new member states, such as Romania, the value of pensions is low and many pensioners engage in agricultural activities to supplement their income (Copus, A. et al., 2006; Tocco et al., 2012c). In other countries, such as Germany, an agricultural holder has to pass on the farm to a successor in order to be eligible for a pension scheme, leading to a small share of holders aged over 65.

Another important supply-side constraint in agriculture concerns the limited access to land and capital, which is worsened by imperfections in the credit market, and thus the inability to access credit. As a consequence, social capital and family links play a key role in agriculture, as they provide access to capital and land needed for farming, hence reducing the probability of unemployment for farm household members (Swinnen et al., 2001). Therefore, the large share of employment in agriculture, often characterised by a surplus of labour and hidden unemployment, implies

DETERMINANTS TO LEAVE AGRICULTURE IN THE EU|159 that agriculture can provide a minimum source of income for those less skilled, older and generally less mobile individuals.

Hidden unemployment and labour immobility can also be a consequence of imperfect information, i.e. poor or incomplete information about the location and availability of jobs or better employment conditions (Kancs et al., 2007). Significant costs of job search may exist in agriculture and the seasonal demand for labour in farm production leads to uncertainty over the obtainment of wage labour (Ellis, 1993). As emphasised by the ILO (2008), information is a vital resource and policy tools therefore need to be in place to ensure that rural workers are aware of job opportunities, in order to promote rural employment and mobility. In this regard, information and communications technologies are fundamental for the facilitation of employment services.

Rural areas, in comparison to urban areas, are usually lagging in terms of GDP per capita and other socio-economic indicators. While this results in lower standards of living, incomes, and a limited access to services and quality products (European Commission, 2006), it also fuels a vicious circle of slow economic growth. Such a situation makes it harder to attract and retain skilled individuals, who are instead pulled into more prosperous regions. Unfavourable labour market conditions, and specifically the lack of jobs opportunities, especially for women and young people, represent one of the main demand-side constraints to rural labour markets and to the mobility of agricultural labour (Juvančič & Erjavec, 2005).

Growth in rural areas and in agriculture depends on investments in physical infrastructure, such as roads and telecommunications, in agricultural research and extension, and in public health and education.

Rural areas are often characterised by poor infrastructure, with poorly maintained roads and difficult access to information and communication facilities (Swinnen et al., 2001). This not only constitutes a mobility constraint for non-farm employment, but also increases the uncertainty and restricts market opportunities for farmers (ILO, 2008). As emphasised by de Janvry et al. (1991), poor infrastructure, non-competitive markets and poor information all lead to high transaction costs.

One of the stylised facts of rural areas is the relatively high level of both direct and hidden unemployment (Davis & Pearce, 2001). High unemployment levels in rural areas are often of a structural nature, due to insufficient education and skills of workers. This would imply that there is an imbalance between the supply and the demand for labour, due to a

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mismatch between the skills that workers are supplying and the skills that firms are demanding. Therefore, due to inadequate specific education and vocational training, individuals are handicapped in their attempts to find alternative employment.

Low mobility of rural households and high levels of on-farm employment despite small farm assets would suggest that there are very few opportunities for alternative income sources and jobs outside agriculture (Juvančič & Erjavec, 2005), which constitute structural impediments for labour adjustments. As suggested by the ILO (2008), rural non-farm activities are often constrained by low market demand, especially in those rural areas with low population density and a high percentage of poverty. On the other hand, smallholders are constrained by a lack of access to inputs and services, as well as low human capital and inappropriate technology, which prevent them from diversifying into higher-value products.

A further limitation concerns the seasonal nature of agricultural activities, which causes fluctuations in both labour demand and supply and results in seasonal employment patterns, seasonal migration, sharp wage variations, widespread unemployment and the dominance of casual over regular employment (ILO, 2008). Seasonality in supply can also be a significant constraint to the development of the non-farm rural sector.

Rural people are subject to seasonal migration, as they are pulled into agriculture during the peak season and are released during the slack season, seeking other employment opportunities or becoming unemployed.

Furthermore, risks of weather and volatility of prices also tend to reduce the demand for labour.

In the EU, within the new member states the disparities between rural and urban areas are accentuated. It is worth stressing here that rural areas in these countries suffer from a less-developed tertiary sector, lower levels of GDP per capita and lower employment rates. Furthermore, despite the high share of people working in the agricultural sector, their specific agricultural training and productivity levels are generally quite low. Therefore, in the context of an enlarged EU where the structure of the agricultural sector presents heterogeneous conditions across member states, it becomes important to examine the differences within labour markets and investigate whether the low mobility of workers reflects the presence of some structural constraints, which prevent entry in non-farm jobs.

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4. Trends and differences in agricultural employment in