Modeling the agricultural employment development within the CGE framework: the consequences for policy responses

In this paper we assess the impact of different agricultural labor and capital market specifications on agricultural employment and income under different agricultural policies. We derive a dynamic agricultural employment equation linking changes in agricultural employment with changes in income per worker earned in agriculture compared with that in other sectors. We implement the estimated equation in a Computable General Equilibrium model based on the Global Trade Analysis Project model – GTAP (Hertel, 1997). In order to analyze the effects of agricultural policies on the agricultural sector, we run a reference policy scenario including EU direct payments decoupling, EU milk quota abolition and the EU agricultural offer in the WTO negotiations. In order to analyze the effects of the new dynamics on the agricultural factor markets, we compare simulation results with the new dynamics with a perfect competition run as applied in standard GTAP and CET labor and capital supply functions as implemented in GTAP-AGR model (Keeney and Hertel, 2005). We show how the new dynamics makes the long-run simulations much more plausible and makes it possible to show the effects of different timings of reforms on agricultural income and employment.