Raising labour productivity to solve the paradox; labour shortage in the labour surplus economy; Malawi. (Is targeted fertilizer subsidy the solution?)

Abstract

Rural Malawian households are facing seasonal labour shortage problem at the peak time of their agricultural season while they are farming in a generally labour surplus economy. This problem is shared by many developing economies and several factors could cause it. Malawi’s economy is characterized by low level of labour productivity which partly accounts for this seasonal labour shortage problem. Thus, it is paramount to increase labour productivity in Malawi as it affects the performance of the agricultural sector. In line with this, the government of Malawi designed Agricultural Input Subsidy Program in 2005 with a major objective of improving labour and land productivity. This paper aims at investigating the most influential factors through which labour productivity can be improved and on assessing how the targeted fertilizer subsidy program affects labour productivity in agriculture in Malawi. Most of the previous studies take labour shortage as one of their many problems to deal with, had wider geographic coverage (like sub-Saharan Africa), tried to deal with agricultural productivity in general and endogeneity of variables is the main thing hidden in many of the studies. Thus, this study focuses on the labour shortage problem in Malawi and gives the attention it deserves. It focuses on raising the smallholder’s labour productivity. We use a large sample from six districts of the economy and panel data regression methods are used to minimize the problem of endogeneity. We also use treatment effect model to further minimize the endogeneity of “participation in the subsidy program” variable when assessing the effect of the program on labour productivity. Land per labour and fertilizer per labour ratios are found to be the most significant factors for farm labour productivity. But, female-headed households, which are less probable to get the fertilizer subsidy, are found to be as productive as male-headed households. It is also found that the targeted fertilizer subsidy enhanced farm labour productivity in Malawi.