The Labor Market as a Smoothing Device: Labor Supply Responses to Crop Loss

Abstract

The paper studies the way in which labor supply responses enable households to smooth consumption in the face of crop loss. The 1993 Indonesian Family Life Survey is unusual because it contains self-reported information on crop loss and on household responses to crop loss. Of those households that report a crop loss, 41.6% also report that they responded by taking an extra job. Using these self-reported measures, the authors find evidence which suggests that the income associated with this shock-induced labor supply is important in allowing the household to avoid reducing consumption expenditure. Household members, however, do not seem to increase their total hours of work. They appear to just reallocate their time from household farming to other labor market activities.