Temporary Migration, Labour Supply and Welfare

This essay addresses the incidence of temporary migration in poor rural economies. The methodological view taken here is that temporary or seasonal migration is a strategy of self-insurance, used largely by peasant households in order to cope with the risk of unemployment and income loss during agricultural slack seasons. Households typically implement the insurance strategy by sending away some of its working members to seek urban jobs during slack seasons while the remaining members pursue rural employment. This allows for diversification of household slack season income risks to the extent that the incomes from rural and urban sources are not fully correlated. The analytical focus of this paper is on exploring how household behaviour, especially with respect to labour supply, is affected by participation in seasonal migration. The market and income distributional outcomes of seasonal migration are also analysed in relation to the corresponding outcomes in the counterfactual state of no migration. The following results are obtained. In the event that the participation in slack season migration is utility/welfare improving, the participating households are likely to supply more labour during the post-migration peak season, compared to the counterfactual state. The intuition is simple. In an intertemporal (i.e., a two season) setting, participation in welfare improving migration in the slack season will allow households to allocate more resources for consumption in the peak season. Higher consumption leads to higher effort supply via the consumption-effort relationship. In terms of the aggregate/market outcomes of migration, the land-owning (employer) households and the peasant households with migrants will experience welfare gains while non-participating peasant households will suffer a welfare loss relative to the counterfactual state.