The Problem

In this chapter we shall examine the problem of actual or “disguised” underemployment as it manifests itself in the agricultural sector. Especially we shall look for a theoretical explanation of the simultaneous existence of surplus labor in agriculture and of labor receiving a positive wage even in those cases where its marginal productivity is zero.

The nature of the problem can, perhaps, best be seen if we review the related questions that are involved. (1) If there is surplus labor in agriculture in the sense that a smaller labor force can cultivate the same amount of arable land, does this mean that the marginal productivity of labor is really zero? (2) It is observed that agricultural laborers do, in fact, receive positive wages, but if their marginal productivity is really zero and there is underemployment, should we not expect that competition among laborers or sharecroppers for available jobs or available land would force their incomes down toward a zero level? If, in fact, wages are not zero, does it make sense to infer that the marginal product is zero?

Is the assertion of an absolute labor surplus true? There are two general bases for the belief in the existence of agricultural underemployment in backward economies: (1) casual observation and (2) statistical comparisons of output between what are sometimes assumed to be roughly comparable areas.