An Empirical Study of the Agricultural Labor Market in a Developing Country, Brazil

Abstract Underemployed agricultural labor implies a poorly functioning labor market. The allocative efficiency of the labor market in the Brazilian state of Minas Gerais is evaluated by estimating agricultural production functions for five regions within the state, estimating the MVP of labor, and comparing this with the MVP of labor in other regions and other sectors of the economy, and with wage rates in both the farm and the nonfarm sectors. The results indicate that labor adjustments are taking place, but not at a fast enough rate to establish equilibrium. Considerable opportunity was found for reallocating labor within the agricultural sector. Surprisingly, in some of the regions the MVP of agricultural labor was greater than the wage rates in the nonfarm sector. Little or no correlation was found between the degree of industrial‐urban development and the performance of the labor market.