The Role of Labor Markets and Human Capital in Poverty Reduction: Evidence from Asia and Africa

Using long-term panel data sets of rural households in the Philippines, Thailand, Bangladesh, and Tamil Nadu (India), a short-term panel data set in Mozambique, and cross-section data sets in Kenya, Uganda, and Ethiopia, the roles of labor markets in the long-term process of poverty reduction in Asia were examined in comparison with the current situation in Africa. There are three main findings. First, reliance on agricultural labor markets alone will not reduce poverty to a significant extent, in view of the declining share of agricultural wage income in Asia and its negligibly low level in Africa. Second, an increased non-farm income is a decisive factor in reducing rural poverty because it has become the major source of the rise in household income. Third, labor markets are clearly segmented in accordance with the schooling levels, where the younger and more educated children are engaged in lucrative non-farm labor employment in order to capture the high returns in schooling in this sector.