Adjusting the Labor Supply to Mitigate Violent Shocks: Evidence from Rural Colombia

Abstract

This paper studies the use of labor markets to mitigate the impact of violent shocks on households in rural areas in Colombia. It examines changes in the labor supply from on-farm to off-farm labor as a means of coping with the violent shock and the ensuing redistribution of time within households. It identifies the heterogeneous response by gender. Because the incidence of violent shocks is not exogenous, the analysis uses instrumental variables that capture several dimensions of the cost of exercising terror. As a response to the violent shocks, households decrease the time spent on on-farm work and increase their supply of labor to off-farm activities (non-agricultural ones). Men carry the bulk of the adjustment in the use of time inasmuch as they supply the most hours to off-farm non-agricultural work and formal labor markets. Labor markets do not fully absorb the additional labor supply. Women in particular are unable to find jobs in formal labor markets and men have increased time dedicated to leisure and household chores. Additional off-farm supply does not fully cover the decrease in consumption. The results suggest that in rural Colombia, labor markets are a limited alternative for coping with violent shocks. Thus, policies in conflict-affected countries should go beyond short-term relief and aim at preventing labor markets from collapsing and at supporting the recovery of agricultural production.

Keywords: Conflict, labor markets, developing economies, instrumental variables

JEL Classification: J13, J16, J22, J40