Household risk-coping and the opening of labor markets in rural China

This dissertation looks at the effect of access to off-farm labor markets on the risk-coping behavior of farm. households in rural China. For many households, the growth in off-farm opportunities during the last twenty years has brought higher incomes while also providing a means of reducing exposure to risk through diversification of income-earning activities. By taking advantage of off-farm labor markets to reduce exposure to risk, households become less reliant on both grain and cash savings as a means of coping with shocks to income.; The analyses of the effects of labor market access use a panel of household and village data collected from 1986 to 1997 by the Research Center for the Rural Economy at the Ministry of Agriculture in Beijing. Local monthly rainfall data, and regional price and labor market data were collected by enumerators and incorporated into the analyses in order to characterize the shocks experienced by households.; Chapter 2 decomposes the sources of variation in household income, and shows that more affluent households allow themselves greater exposure to shocks during the period of expanding access to off-farm employment opportunities. Poorer households, on the other hand, experience less income variability during this period, suggesting that they use diversification opportunities to reduce exposure to shock.; Chapter 3 looks at the impact of access to off-farm employment on how well households insure income and consumption in the face of rainfall shocks. Improved village access to migrant labor markets reduces the variability of both income and non-durable consumption associated with these shocks.; Chapter 4 turns to an analysis of how the mechanisms used to smooth shocks change with growth of village access to both local and migrant labor markets. Decline in the use of both grain and monetary savings with appearance of off-farm employment opportunities suggests that opportunities for diversification lead households to reduce reliance on liquid forms of precautionary savings as means of coping with risk. With greater village participation in local labor markets, informal credit grows in importance as a means of smoothing shocks to production.