The Determination of Agricultural Wage Rates in Bangladesh

The impact of the ‘green revolution’ on wages has been a contentious issue. This paper uses the cointegration and error correction approach to identify long and short‐run relationships between prices, agricultural production and wages of agricultural labourers in Bangladesh, test for homogeneity, test for weak exogeneity with the Johansen‐Juselius methodology, test for a structural break, and estimate the long and short‐run elasticities of nominal wages with respect to rice prices.We find that agricultural wages have strong positive long run relationships with rice prices, manufacturing wages and agricultural productivity. The short run response of wages, estimated consistently with these longer run relationships, to rice prices is small, highlighting the vulnerability of the rural poor to sudden rises in rice prices, even though in the longer run nominal wages respond sufficiently to rice prices. Policy can promote growth of agriculture and manufacturing but should also mitigate the short run food insecurity of agricultural labourers.