Food Policy xxx (xxxx) xxxx

Contents lists available at ScienceDirect

Food Policy
journal homepage: www.elsevier.com/locate/foodpol

Seasonal rural labor markets and their relevance to policy analyses in

developing countries
Arndt Feuerbachera,b,⁎, Scott McDonaldb, Chencho Dukpac, Harald Gretheb
a
Agricultural and Food Policy Research Group, University of Hohenheim, Schwerzstr. 46, 70599 Stuttgart, Germany
b
Department of Agricultural Economics, Humboldt-Universität zu Berlin, Berlin, Germany
c
Research and Development Center Yusipang, Ministry of Agriculture and Forests, Thimphu, Bhutan

ARTICLE INFO ABSTRACT

Keywords: Seasonality is a salient feature of rural livelihoods and particularly within agriculture the demand for labor
Rural livelihoods varies with the seasons and weather. In low-income countries, agriculture employs almost two-thirds of the labor
Seasonal labor force and incomes from labor are a major determinant of welfare. Therefore, an appropriate model re-
Rural labor markets presentation of rural labor markets is critical when analyzing agricultural and food policies. Economy-wide
Economy-wide modeling
models are commonly used for ex-ante policy analysis, but have so far ignored the influence of seasonality,
Policy analysis
Bhutan
implicitly assuming separability of seasonal labor demand and supply. This study relaxes that assumption using a
computable general equilibrium (CGE) model calibrated to the Bhutanese economy as an illustrative case. Using
JEL classification: model setups with and without seasonal labor markets, a cereal export ban of India is simulated leading to higher
C680 import prices for Bhutan. Results demonstrate that neglecting the influence of seasons on rural labor markets
J220 systematically biases model results. Assuming homogeneity of labor units, i.e., allowing substitution across
J430 seasons, understates the impacts of policy changes on rural wage rates, distorts households' labor-leisure trade-
O130 off decisions and overstates agricultural supply response. Given the widespread use of economy-wide models, the
results are important for understanding the implications of domestic and global policy changes for agriculture
and welfare in developing economies.

1. Introduction Globally, seasonality particularly affects the extreme poor, more

Agricultural production is a biological process governed by the
weather and seasons: the demand for inputs follows the seasons and
sequencing of agricultural operations, e.g., soil preparation, planting,
weeding and harvesting. Seasonal fluctuations in labor demand are a
feature of agriculture in all economies, but are particularly pronounced
in low-income agrarian economies, due to labor-intensive methods of
production and limited options for investment in labor-saving tech-
nologies (Taylor and Charlton, 2019). With “agriculture being a sea-
sonal operation, it is somewhat misleading to speak in terms of a
homogeneous unit of labor. A unit of labor at the time of harvesting is
not replaceable by a unit of labor at a slack period” (Sen, 1966, p. 440).
This insight is important for an understanding of rural labor markets;
seasonal labor bottlenecks are constraints on agricultural output “re-
gardless of the degree of [apparent] underemployment” (Ruthenberg,
1971, p. 78). Also, farmers’ awareness about the risk of seasonal labor
shortages is reflected within their resource allocation and production
planning (Fafchamps, 1993).
than 80% of whom reside in rural areas (Castañeda et al., 2018). Em-
pirical studies have recorded evidence of seasonal labor shortages and
underemployment in economies as divergent as China (Zhang et al.,
2011), Malawi (Wodon and Beegle, 2012), India (Reddy et al., 2014)
and the U.S. (Taylor et al., 2012). Seasonal underemployment rather
than open unemployment is the prevalent observation in rural areas,
since farmers find some level of employment in non-farm activities
during slack periods (Bezu et al., 2012; Binswanger and Rosenzweig,
1981). Seasonal underemployment disproportionately affects women
(Jarvis and Vera-Toscano, 2004), is a driver of seasonal migration
(Bryan et al., 2014) and a target of public employment schemes
(Devereux, 2016). Seasonality is also the reason why agricultural
workers in Sub-Saharan Africa tend to supply much less hours per year
than workers in industry and services explaining a substantial share of
the labor productivity gap (McCullough, 2017).
Seasonality of labor markets has been taken into account by
econometric studies (e.g., Jarvis and Vera-Toscano, 2004; Jessoe et al.,
2018) and micro-level models such as farm-level, multi-agent and

⁎
Corresponding author.
E-mail addresses: a.feuerbacher@uni-hohenheim.de (A. Feuerbacher), cdukpa@moaf.gov.bt (C. Dukpa), grethe@hu-berlin.de, grethehx@hu-berlin.de (H. Grethe).

https://doi.org/10.1016/j.foodpol.2020.101875
Received 25 June 2019; Received in revised form 27 February 2020; Accepted 29 February 2020
0306-9192/ © 2020 Elsevier Ltd. All rights reserved.

Please cite this article as: Arndt Feuerbacher, et al., Food Policy, https://doi.org/10.1016/j.foodpol.2020.101875
A. Feuerbacher, et al. Food Policy xxx (xxxx) xxxx

multi-period models incorporating stochastic sequential decision followed, by details of the scenario implemented and the model settings
making (e.g., Antle, 1983; Berger and Troost, 2014). In the case of in section 4. The results are analyzed in section 5, followed by reports
micro-level models, the absence of seasonality of labor demand distorts on sensitivity analyses in section 6. The paper ends with a discussion of
model outcomes, since it allows the use of more resources than those the conclusions and their implications.
available (Hazell and Norton, 1986, pp. 42–46). Micro-level models
neither capture consumption and forward and backward linkages
2. Background
within economies nor do they depict the operations of labor markets.
But, economy-wide models such as computable general equilibrium
2.1. Seasonality of labor markets
(CGE) models, which are extensively used for policy analysis
(Devarajan and Robinson, 2005), have neglected the seasonality of
Demand for seasonal labor can be derived from a production func-
labor demand. They commonly assume strong separability between
tion x a = f (l, k, n, i , , ) , where x a is a vector of outputs of activity a;
production and consumption decisions, which implies perfect inter-
l, k , and n (labor, capital and land) are vectors of primary inputs, i is a
temporal substitution in decisions by households about labor supply
vector of intermediate inputs, σ is a vector of substitution elasticities
across a year. Such annual model setups sidestep the reality of the
and a vector of efficiency factors. The labor inputs can be defined
seasonal fluctuations of labor demand in agriculture addressed else-
using skill types, e.g., by education or occupation categories, and sea-
where.
sonal types, e.g., by months. Nested constant elasticity of substitution
Only two studies that incorporate seasonal demands for labor in an
(CES) functions allow flexibility in substitution possibilities such that,
economy-wide framework are known. Finnoff and Tschirhart (2008)
for instance, the substitution possibilities between labor of different
model the interrelations between the Alaskan fishery and tourism sector
skill types can be greater than the substitution possibilities between
as non-consumptive services of the marine ecosystem in a bioeconomic
labor of different seasonal types within each skill type.1 The associated
general equilibrium model. Within a three-sector recursive-dynamic
first order conditions identify the factor returns and allow wage rates
CGE model, seasonal wage differentials are identified as workers expect
for each type of labor to vary across seasons reflecting the seasonal
higher payment within the fishing season compensating them for the
patterns of labor demand.
likelihood of facing unemployment in the off-season. Filipski et al.
The elasticities of substitution of seasonal labor depend on the
(2017) analyze the impacts of Saffron price volatility on rural liveli-
economic activity. Cropping activities, e.g., paddy rice, may follow
hoods in a Moroccan village characterized by a strong gender based
rigid sequences defined by nature, as noted by Sen (1966), which im-
division of labor. The rural labor market is segmented by gender and
plies no, or limited, substitution possibilities. Non-farm activities may
two seasons, the Saffron harvest (<1 month) and the growing season
provide complementary employment options for rural labor with a
(rest of the year). This allows analyzing how changes in seasonal labor
counter seasonal pattern relative to cropping activities (Reardon et al.,
demand impact male and female wages and the substitution between
1998). For manufacturing activities, the degree of substitution of labor
seasonal labor and leisure within and outside the Saffron harvest
across seasons will be greater.
season. Both studies rely on case study specific model specifications at
Labor supply adjusts to the (rigid) seasonal labor demand, de-
either the village or sub-national level. They only distinguish between
pending on the ease with which households can trade-off time for lei-
two seasons and give no (Finnoff and Tschirhart, 2008) or limited
sure with participation in the labor force in one period, and vice versa
(Filipski et al., 2017) consideration of the wider effects of labor sea-
in other periods. Economic theory argues that individuals maximize
sonality on rural economies and the agricultural sector. Filipski et al.
utility by trading off consumption and leisure - uh = u (x c, h , leic, h) , where
(2017) highlight bottlenecks of female labor supply during the Saffron
uh is a vector of household utilities, x c, h is a vector of consumption of
harvest season, but they do not include intraseasonal substitution of
commodities, c, by household, h; and leic,h is a vector of household
leisure. Finally, in both studies consumption and leisure are gross
specific domestic services. Domestic services comprise leisure and ser-
complements.
vices from social reproduction (e.g., house maintenance, child care and
This study contributes to the literature by reporting the first
cooking). These are produced outside the System of National Account’s
economy-wide model that incorporates seasonality of labor and leisure
(SNA) production boundary (ISWGNA, 2009 para 1.41), which only
at a national scale, with intraseasonal substitution of leisure. This sea-
encompasses goods and services that could be sold on markets at un-
sonal model is compared to an annual model (with annualized instead
iquely defined prices (ISWGNA, 2009 para 6.24). Leisure and social
of seasonal labor markets). The model and experiments scrutinize the
reproduction thus need to be modelled using household specific activ-
standard (implicit) assumption of economy-wide models that seasonal
ities (see Section 3.1.3).
labor demand and supply are separable, i.e., labor types are measured
The labor force (persons employed, self-employed and seeking em-
in ‘homogenous units’. With some 63% of the labor force in low-income
ployment) is defined internationally as those “individuals willing to
countries employed in agriculture (World Bank, 2019), and incomes
supply labour to undertake an activity included in the SNA production
from labor being a primary determinant of welfare, the study addresses
boundary” (ISWGNA, 2009. 405 para 19.5). The size of an economy’s
how the neglect of seasonal labor demand may bias the results from
labor force, and its composition, can change seasonally as households
economy-wide models.
trade-off hours supplied inside the production boundary and social re-
Bhutan serves as an illustrative case, for which data on seasonal
production activities. This is particularly relevant for economies char-
labor and leisure quantities were collected and compiled as a social
acterized by large variations in the seasonal demand and limited sub-
accounting matrix (SAM) (Feuerbacher et al., 2017). A range of food-
stitution possibilities for social reproduction.
price shock simulations provide evidence that ignoring seasonal labor
Modelling labor supply is more complex because it is necessary to
demand systematically biases the results with implications for agri-
allow for the observed periods of apparent underemployment and those
cultural supply response, income and household welfare. The analyses
periods when there are high demands for labor, e.g., for harvesting and
and various robustness checks demonstrate that core results apply to
weeding. If labor demand is less time dependent, the availability of
countries with large shares of labor in seasonal activities and underline
labor for production activities is less time critical. The time dependency
the importance of considering seasonal labor in economy-wide ana-
of labor used to produce leisure is, arguably, more flexible than labor
lyses, particularly in developing agrarian economies.
The rest of the paper is organized as follows. The next section re-
views the definition of the labor force and seasonal labor and gives an 1
Regular nested CES functions “are globally well-behaved and can provide a
overview of the Bhutanese economy. The third section reviews the local approximation to any globally well-behaved cost function” (Perroni and
model and data used and details about model calibration. This is Rutherford, 1995).

2
A. Feuerbacher, et al.
used for social reproduction. Substituting time use across periods, in
response to changes in wage rates, means taking less leisure during
periods of peak labor demand with compensating increases in leisure
during periods of slacker labor demand.2 Such patterns of labor demand
across production cycles are a feature of agricultural production in both
developed and developing economies and are an explanation for
“[apparent] underemployment” in developing countries (Ruthenberg,
1971, p. 78).3
2.2. Country context Bhutan
Bhutan, known for its development philosophy of Gross National
Happiness, has a population of about 735,000 of which 62% reside in
rural areas (NSB, 2018). The country is landlocked in the mountainous
Eastern Himalayas, with its main access routes being south into India.
Bhutan’s poverty headcount ratio declined from 23% to 8% between
2007 and 2017 (NSB and World Bank, 2017). Economic development
largely benefitted the urban population and poverty became a rural
phenomenon, particularly in the Southern and Eastern districts of
Bhutan. Compared to other South Asian countries, Bhutan scores well
on most nutrition indicators with only 2.8% of the population living
under the food poverty line of 2,124 kcal in 2012 (NSB and World Bank,
2012). However, stunted growth, in children younger than five years
old, and anemia, which affects women and children, remain challenges
(Atwood et al., 2014).
Bhutan is a peasant economy, despite increasing investments in the
formal economy, with about 50% of the labor force working in agri-
culture (NSB and ADB, 2012) – similar to other South Asian countries
(World Bank, 2019). Agriculture is dominated by semi-subsistence
smallholders cultivating, on average, 1.2 ha (NSB, 2018). Only 3% of
Bhutan’s land area is used for farming, which is driven by labor and
capital scarcity rather than land scarcity. About 21% of arable land is
left fallow, with an increasing trend over recent years (MoAF, 2016).
Labor shortages are the main farming constraint, reflecting the very low
population density (19 people per km2) (NSB, 2018) and limited scope
for mechanization, e.g., power tillers for land preparation, due to steep
slopes of rainfed land and narrow rice terraces.
Bhutan is a “monsoon economy” (Reardon et al., 1998). The onset of
monsoon rains determines the cropping pattern of rice, with seasonal
labor bottlenecks observed during the rice transplanting and harvesting
periods. Farm labor demand is relatively low in slack periods, i.e.,
outside the main cropping seasons, when farmers pursue non-farming
activities such as textile weaving and forestry. There are considerable
regional differences in monsoon rain patterns and climatic conditions.
Three major agroecological zones (AEZs) have been identified: the
humid subtropical zone (AEZ1, below 1200 m of altitude), the dry
subtropical zone (AEZ2, 1200 – 1800 m) and the temperate zone (AEZ3,
above 1800 m). Agricultural households and cultivated land are almost
equally distributed across these zones.
Rural settlements are scattered and difficult to access, despite a
growing rural road network. Except for pastoralists migrating between
summer and winter camps, there is little evidence and no data on rural-
rural seasonal migration. Rural livelihoods are dependent on crop
agriculture. Cattle husbandry, which dominates livestock agriculture, is
land extensive, but labor intensive; reflecting low productivity and
widespread discouragement of slaughtering due to Buddhist beliefs.
2
Another form of adjustment in developing, and developed, economies is
seasonal labor migration; slack periods in some areas coincide with peak per-
iods in other areas.
3
In high-income countries farmworkers, historically, worked shorter weeks
during slack (winter) seasons and longer weeks in peak seasons and worked
more overtime during peak seasons. Other examples of adaptation to seasonal
workloads include the use of contractors, e.g., the harvest teams that work their
way north harvesting grains in the U.S.
3
Food Policy xxx (xxxx) xxxx
Agricultural households in the temperate zones (AEZ3) are closer to
urban centers (particularly Thimphu and Paro in Western Bhutan).
They have more diversified income sources, particularly the landless
agricultural households. Per capita incomes decline with decreasing
altitude and increasing distance from the Western urban areas. While
the climate at higher altitudes is a constraint, it allows farmers to
supply out of season produce to India and Bangladesh (MoEA, 2012).
The main cash crop exports are vegetables, potatoes and apples from
the temperate regions (AEZ3), and citrus, cardamom and ginger from
the subtropical zones. The cultivation of cereals, particularly rice and
maize, occupies two-thirds of cropland. Cereal yields are low compared
to other South Asian countries, reflecting low adoption levels of agro-
chemicals (Feuerbacher et al., 2018).
Bhutan maintains a free trade agreement with India. With sub-
sistence consumption absorbing the largest share of farmers’ cereal
production, Bhutan is reliant on cereal imports from India; 35% of total
cereal demand (Feuerbacher et al., 2017). Increasing the degree of food
self-sufficiency, for inter alia, reasons of sovereignty, is a political
priority in Bhutan. Recently, India has imposed export bans on cereals,
but exempted Bhutan. If India imposed a cereals export ban on Bhutan
the import costs would increase sharply due to the higher transporta-
tion costs.
3. Data and model
3.1. The model
The model is a single country comparative-static CGE model de-
veloped from the STAGE2 (McDonald and Thierfelder, 2015) and
STAGE_DEV models (Aragie et al., 2017). There are three substantive
developments.
3.1.1. Production system
The nesting of the production functions is extended to incorporate
seasonal labor and fertilizer – a land saving intermediate input (see
Fig. 1). The top nests aggregate non-land saving intermediate inputs
and value-added components using CES or Leontief technologies. At the
second level, Leontief technologies aggregate non-land saving inter-
mediate inputs and CES technologies aggregate the fertilizer-land and
capital-labor composites. The third level combines land and aggregate
fertilizers, where the latter is a combination of chemical and organic
fertilizers (manure) from the fourth level; both use CES technologies.
The capital-labor composite is a combination of capital and aggregate
labor, with aggregate labor being a combination of seasonal and per-
manent labor (level 4) – seasonal labor inputs are shaded. Permanent
labor is a combination of skilled and unskilled labor, while seasonal
labor is an aggregate of farm labor from all 12 months. All the capital
and labor components are aggregated with CES technologies. The point
estimates for the CES elasticities, used at each level of the production
system, together with the sources used are detailed in the supplemen-
tary material (Appendix A).
3.1.2. The demand system
The demand system in STAGE_DEV is extended to a three level CES-
LES-CES nest, where LES is the Linear Expenditure System. In the first
(CES) level households trade-off aggregate leisure/social reproduction
services and aggregate consumption. At the second (LES) level house-
holds determine the optimum consumption levels of aggregate com-
modities, e.g., processed food, services, other goods, subject to
minimum (subsistence) levels of consumption. At the third (CES) level
households choose optimum mixes of ‘natural’ commodities subject to
relative commodity prices and the constraints of preferences, income,
available labor resources and subsistence requirements. This setup al-
lows households to substitute similar goods and services, e.g., rice,
maize and other cereals. The income elasticities of demand for com-
modity groups at the LES level were estimated using cross-sectional
A. Feuerbacher, et al.
Fig. 1. Production structure incorporating seasonal labor.
household data from the 2012 Bhutan Living Standard Survey
(Feuerbacher, 2019). The CES parameters to aggregate the commodity
groups are documented in the supplement (Appendix B).
3.1.3. Labor-leisure and social reproduction
Each household has an activity that produces household specific leisure
(including social reproduction), which requires inputs of labor services
owned by the associated households. These production functions are de-
fined as CES aggregates of labor by permanent and seasonally employed
labor, i.e., there are labor substitution possibilities in the production of
household leisure. By defining activities that produce commodities outside
the production boundary as household specific, i.e., they can only be pro-
duced and consumed by the household, there are uniquely defined prices
for commodities and services produced inside and outside the boundary
(Aragie et al., 2017). The approach in this model is a generalization of a
method used by Fontana and Wood (2000).
This specification means that only those labor services owned by
each household not used to produce leisure can be supplied to other
activities. This requires that labor markets are cleared, in quantity
terms, at the household level. It is common in CGE models (e.g., Hertel,
1997; Lofgren et al., 2002; McDonald and Thierfelder, 2015) to clear
labor markets by implicitly assuming that the proportions of each type
of labor supplied by each household are constant. In the model this is
defined as a FDf , a FSIins, f , where FDf , a is the factor, f, de-
ins
manded by activity, a, and FSIins, f is the factor supplied by institution,
ins, which includes households (Aragie et al., 2017). Labor market
clearing at the household level ensures that labor services used by ac-
tivities within the production boundary, and outside the production
boundary for social reproduction and leisure, cannot exceed those
available to the household. This formulation endogenizes the distribu-
tion of income, i.e., the distribution of earned income among house-
holds is a variable dependent on the quantities of labor each household
sells to activities.
3.2. The data
The database is a SAM for Bhutan in 2012 (Feuerbacher et al., 2017)
with satellite accounts for quantities of factors and elasticities (see
Appendix C for Bhutan’s economic structure as represented in the
SAM). The seasonal demands for farm labor were estimated for 12
monthly periods from primary data, seasonal calendars, secondary data
from the (national) 2012 agricultural sample survey (MoAF, 2013),
4
Food Policy xxx (xxxx) xxxx
crop calendars and cost of production studies (Appendix D). The de-
mands for ‘skilled’ and ‘unskilled’ labor and all other factor are not
seasonal.
Seasonal farm labor dominates the rural labor market, although
non-farm workers like teachers, shop owners, etc., also reside in rural
areas. The rural labor market is also segmented by the three AEZs, to
reflect variations in climate and altitude and differences in growing
conditions in Bhutan. Non-farm labor is classified as unskilled and
skilled (permanent) labor. Farm labor is demanded by agricultural, food
processing and off-farm activities. Non-farm labor is demanded by
manufacturing and service activities. Households are classified as
agricultural if at least one household member is reported to work
within agriculture. Agricultural households are sub-divided by AEZs
and access to land, i.e., farm and landless households. There are five
land accounts (rainfed, irrigated, orchard, pasture and forestland),
which are sub-divided by AEZs. There are four capital factors: two li-
vestock capital accounts (cattle and other animals), and two physical
capital factors by ownership (agricultural household and incorporated
business enterprise owned).
Seasonal activities are those that demand seasonal labor. Their
shares in total output, required person-days and characteristics of sea-
sonal labor demand are reported in Table 1. Cropping activities have
‘rigid’ labor demands, i.e., operations such as transplanting or har-
vesting of paddy are performed in specific time windows (Appendix E).
Other seasonal activities such as livestock husbandry or textile weaving
by farm households are performed with flexibility in labor demand.
Some crops, in Bhutan, are cultivated in different seasons or with dif-
ferent cropping patterns, e.g., double or single cropping of maize; these
activities were disaggregated accordingly. Cropping activities account
for 52% of seasonal activities’ output, by value, and 43% of total
person-days. The high labor intensity of rice production − 250 person-
days per hectare4 – means that rice cultivation accounts for ~ 38% of
cropping labor. There are 37.9 million person-days provided by about
170,000 farmers, i.e., an average of 225 working days per person; this
excludes labor used for social reproduction and leisure. Overall, em-
ployment in seasonal activities accounts for 48% of Bhutan’s labor days.
The available data do not allow for a meaningful separation of the
accounts for social reproduction and leisure; they are therefore treated
as a single account – ‘leisure’
4
Maize has half the labor intensity per hectare.
A. Feuerbacher, et al. Food Policy xxx (xxxx) xxxx

Table 1
Seasonal activities represented in the 2012 Social Accounting Matrix for Bhutan.
Activity %-Share in total seasonal Person-days (in Share in total person-days employed in Seasonal labor substitution
output value thousand) production elasticity σ

Milled, rice 12.7 6,065 16.0 0

Double cropping of maize 1.8 1,102 2.9 0
Single cropping of maize 5.2 2,971 7.8 0
Other cereals and oilseeds 2.5 1,100 2.9 0
Vegetables - first season 4.5 786 2.1 0
Vegetables - second season 4.5 1,107 2.9 0
Potato - first season 5.9 1,411 3.7 0
Potato - second season 0.2 96 0.3 0
Spices 4.3 453 1.2 0
Fruits 10.1 1,032 2.7 0

Total cropping activities 51.6 16,123 42.5

Cattle husbandry 9.6 8,249 21.8 0.1

Other animals 5.3 2,049 5.4 0.1
Dairy production 12.5 3,914 10.3 0.2

Total livestock activities 27.4 14,212 37.5

Other cereal milling 1.0 146 0.4 1.5

Cereal processing 2.6 345 0.9 1.5
Araa production 4.0 786 2.1 1.5

Total food proc. activities 7.6 1,277 3.4

Community forestry 8.6 4,164 11.0 1.5

Textile weaving 4.8 2,123 5.6 1.5

Total non-farm activities 13.4 6,287 16.6

Total seasonal activities 100.0 37,899 100.0

Total seasonal leisure 14,655 0.2

Please note: Each seasonal activity is further disaggregated by agroecological zones.

a
Ara is a traditional home-brewed alcoholic beverage made from cereals

3.3. Labor market calibration AEZ1 - Humid subtropical zone

1600
3.3.1. Labor-leisure trade-off 1200
Each household can consume leisure produced by its own labor. A 800
simple formula to calibrate a plausible income elasticity of labor supply, 400

H , Y , is H , Y = H T 1, where H denotes annual days worked and T is 0

households’ annual disposable time-endowment (Boeters and Savard, 2013,
in 1000 person-days

AEZ2 - Dry subtropical zone

p. 1654). T consists of H and households’ annual quantity of leisure, F, 1600
1200
(T = H + F). H is calibrated to 225 days per years in order to match the
800
total imputed days worked with the number of agricultural workers in
400
Bhutan. The need is to determine T. The upper bound for T, 365 days, is
0
unrealistic, since this would result in empirically implausible income elas-
ticities of labor supply. The lower bound for T ranges between 262 (in AEZ3 - Temperate zone
1600
AEZ3) and 298 days (in AEZ1), if it is assumed there is zero leisure at peak
1200
labor demand. Assuming a minimum quantity of leisure (including re-
800
production) every month, T is set to 312 days per year (or six days per
400
week) for all AEZs, leaving 87 days (312–225) for leisure and social re-
0
production. The distribution of seasonal labor demands is reported in Fig. 2. Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec
For (farm and landless) agricultural households the implicit income Months
elasticity of labor supply is −0.28 ( H , Y = 225 312 1). For non-agri-
Seasonal activities Cropping Livestock Non-Farm Leisure
cultural households, the leisure endowments are estimated for an elasticity
of −0.15. Two factors restrict the choice of H , Y towards the upper bound. Fig. 2. Distribution of seasonal labor demand across agroecological zones in
First, the minimum annual quantity of leisure determined by seasonal labor 1000 person-days per month.
peaks (assuming constant seasonal time endowments). Second, the as-
sumption that leisure is a normal good, since a positive H , Y would require low-income countries report higher levels of H , Y (Barrett et al., 2008;
H > T . The above calibrated H , Y fall within the range of estimates reported Jacoby, 1993; Skoufias, 1994) implying lower quantities of leisure, which
by Bargain and Peichl (2016).5 The studies using shadow-wage data from would amplify the effects of seasonal labor market constraints. This is
shown by the sensitivity analyses reported in Section 6 below.
5
The CES substitution elasticity for the labor-leisure trade-off, lei, X ,
Excluding the case of leisure being an inferior good, the estimates range
can be calibrated by the formula lei, X = 1 H , w H , Y , where H , w is the
between 0.00 and −0.40.

5
A. Feuerbacher, et al.
Table 2
Changes in Bhutan’s import prices of cereals following an Indian export ban on cereals.
Commodity Base
Share in total cereal Import intensity Import unit price
demand (2012)
(%) (%) (USD/ton)
Milled rice 67 43 325
Maize 22 3 225
Wheat and other cereals 11 41 277
Cereals, total 35 298
Source: Author’s calculation based on 2012 Bhutan SAM and World Bank, 2017.
a
Computed by dividing the increase in import cost of 117 US-$ ton-1 by the import unit price times the share imported from India.
wage elasticity of labor supply (Boeters and Savard, 2013). The wage
elasticity of labor supply is set to 0.15 following Goldberg (2016), who
estimated the wage elasticity in rural Malawi.6 The resultant elasticities
of labor-leisure substitution, lei, X , are 1.54 for agricultural and 2.00 for
non-agricultural households. Sensitivity analysis demonstrates the ro-
bustness of model results across a range of elasticities.
Labor demand patterns differ markedly across activities, particularly for
cropping activities with rigid labor demand (Fig. 2). Potential seasonal labor
bottlenecks are driven by the paddy transplanting and harvesting seasons,
which vary by AEZ, e.g., in AEZ1 transplanting is in June-July and har-
vesting in November-December. Livestock activities, comprising more than
a third of total seasonal labor (Table 1), and leisure have more flexible labor
demand. Non-farm activities have highly flexible labor demand and follow a
counter-cyclical pattern, i.e., their labor demand is lowest during peak
periods and highest during lean seasons.
3.3.2. Production of leisure
There are no known estimates of substitution elasticities for different
labor types (skilled, unskilled or seasonal) in the production of leisure. An
elasticity of 0.50 is assumed, i.e., inelastic substitution. Total seasonal leisure
is a CES aggregate that allows households to substitute seasonal leisure
across time subject to an (implicit) intertemporal elasticity of substitution
(IES). The intra-seasonal substitution of leisure is analogous to the inter-
temporal substitution of labor supply due to short-term (or transitory) wage
changes in the life-cycle labor supply theory (Lucas and Rapping, 1969).
Most estimates for the IES range between 0.00 and 0.50 (Card, 1994;
Heckman and MaCurdy, 1982; Lee, 2001), but other estimates range be-
tween 0.01 (Connolly, 2008) and 1.2 (Fehr and Goette, 2007). Few esti-
mates for developing countries use shadow wage estimations. Fafchamps
(1993) reports an infinite elasticity, while Skoufias (1996) estimates IES for
female workers ranging between 0.057 and 0.079. There are no estimates
for Bhutan. Recognizing that leisure here includes social reproduction, an
elasticity of 0.20 is used (see Table 1). The results are robust when varying
the IES between 0.1 and 1.2. If the IES is infinite, there is, by definition, no
seasonality.
4. Model scenarios
The core scenario is rooted in a possible policy change: an export
ban on cereals by India requiring Bhutan to purchase cereals from
countries other than India. This scenario is referred to as ExpBan.
During periods of world food price spikes, India has repeatedly applied
export taxes or even bans to stabilize domestic food prices (e.g., Villoria
and Mghenyi, 2016). So far Bhutan was exempted from these measures
(GoI, 2014). Bhutan has no border crossings with China, its Northern
neighbor, hence cereal imports from the rest of the world must arrive by
land through India or by air. The average import cost per ton from the
6
Barrett et al. (2008) report a wage elasticity of 0.12 which is based on
shadow wage estimations. The simulation results hardly differ, if this elasticity
is used instead.
6
Food Policy xxx (xxxx) xxxx
ExpBan (Export Ban)
Quantity imported Share imported from Increase of cereal import prices (CIP)a
(2012) India (in foreign currency)
Tons (%) (%)
72,297 100 36
2,257 100 52
5,967 60 25
80,521 96 37
world market to Bhutan is estimated to be 117 USD/ton (World Bank,
2019). This is the applied mark-up on world cereal prices (Table 2),
which increases the carriage insurance and freight paid price (in USD)
of imported cereals by 35%. Additional scenarios with changes in im-
port prices of cereals ranging between −50% and +50% were run to
assess the results’ robustness to the magnitudes of price changes.
4.1. Model setups and closure
The impacts of changes in cereal import prices on Bhutan’s economy
are simulated with two different behavioral specifications; a model with
seasonal labor data (henceforth, the seasonal model) and a model with
annual labor data (henceforth, the annual model). The seasonal model
depicts seasonality as described in the model structure, with twelve
monthly farm labor accounts per AEZ (as in nest L5.1 in Fig. 1). In
contrast, the annual model has one farm labor account per AEZ: this
excludes seasonality and replicates the standard assumption of homo-
genous labor. Imports are modelled as imperfect substitutes for do-
mestically produced goods and services (using CES functions)
(Armington, 1969) as are exports (using constant elasticity of trans-
formation functions) (de Melo and Robinson, 1989). The elasticities
used are reported in the supplement (Appendix A). The consumer price
index (CPI) serves as the model’s numéraire. The small country as-
sumption is used, i.e., fixed world market prices, and the external
balance (foreign savings) is cleared by a flexible exchange rate. The
models are investment-driven; the investment quantities are fixed and
the investment-savings account is cleared by flexible household saving
rates. Government savings are fixed in real terms and income tax rates
vary (additively) to clear the government account. Alternative macro-
economic closures are evaluated in the sensitivity analysis.
4.2. Factor market clearing
A medium-term horizon is imposed for clearing the factor accounts. The
supplies of each type of capital are fixed and perfectly mobile across ac-
tivities.7 All labor accounts, skilled, unskilled and seasonal labor, are per-
fectly mobile across activities: they are segmented by characteristics (skill-
level, AEZ and time-period) which cannot be altered, i.e., no labor mobility
across characteristics. Land is perfectly mobile within its land-type across
cropping activities, i.e., the export ban is assumed to persist over the
medium-to long-term allowing farmers to adjust their land allocation. A
land supply curve (Eickhout et al., 2009) is implemented to account for the
21% of arable land left fallow in Bhutan. Land supplies depend on the land
rental rate and approaches an asymptote of maximum land supply as the
factor price for land goes towards infinity. An inelastic supply of land, with a
price elasticity, nAL = 0.8, is used following the estimate of Eickhout et al.
(2009) for the South Asian region. Model results are robust to variation of
this parameter.
7
Capital is only mobile between activities that employ the respective capital
category in the base SAM.
A. Feuerbacher, et al. Food Policy xxx (xxxx) xxxx

Table 3 is hindered by seasonal labor constraints.

Changes in summary results, welfare and agriculture sector indicators. Agricultural households’ consumption increases, since they benefit
GDP components (volumes valued Base share Change from base year (%) from higher food prices and increased land cultivation. The positive
at base prices) of GDP (%) impacts accruing mostly within rural areas (where also non-agricultural
Annual Seasonal households reside) are offset by non-agricultural households (due to
model model their lower purchasing power) and overall reduction of labor supply.
GDP 100.0 −0.04 −0.09 These factors explain the overall decline in household consumption and
Absorption (C + I + G) 131.5 −0.27 −0.31 the modest reduction in real GDP. The trade deficit in volumes valued
Consumption (C) 45.2 −0.76 −0.88 at base prices declines, since agriculture attracts more land over time
Consumption, agricultural 15.2 0.49 0.16 allowing for a substantial substitution of cereal imports. This is why
households
Bhutan’s domestic currency rate appreciates in nominal terms.
Consumption, non-agricultural 30.0 −1.39 −1.40
households In the seasonal model, the supply response to changes in cereal
Investment (I) 67.0 0.00 0.00 prices is less than in the annual model. This is because seasonal labor
Government (G) 16.2 0.00 0.00 bottlenecks result in surging wage rates during periods of peak labor
Exports (E) 34.7 −0.63 −0.57
demand, resulting in larger increases in cereal prices than in the annual
Imports (M) 66.2 −0.78 −0.77
Other macro indicators model. The annual model allows for perfect intertemporal substitution
Nominal exchange rate (Domestic −1.55 −1.58 of labor and leisure, thereby providing more usable labor for crop
currency/foreign currency) production. Consequently, real GDP, absorption and welfare decline
Real exchange rate (Domestic 0.10 0.10 less than in the seasonal model. The increase in labor supply in the
currency/ foreign currency)
annual model also results in a smaller decline of average household
Producer price index (PPI) −1.12 −1.16
Labor supply −0.10 −0.23 income. However, when accounting for leisure, average changes in
Avg. household income (excl. −0.82 −0.93 welfare, at least at the aggregate level, are similar in both models.
leisure)
Avg. household welfarea −0.53 −0.56
5.2. Commodity prices and output
Agriculture sector indicators
Crop producer prices 2.40 3.11
Crop production 2.75 1.53 The rice and other cereals commodity accounts are affected most by
Farm labor wages 2.15 3.79 the Indian export ban, due to their high import intensities, i.e., imports
Farm labor supply 0.55 −0.14 as shares of domestic demand: about 50% of the increase in rice and
Arable land rent 5.44 3.37
other cereal import prices is transmitted to consumers. Maize has a very
Arable land supply 3.14 2.48
low import intensity (3.1%) and hence a low-price transmission.
a
Welfare changes are measured by the Slutsky equivalent variation incl. Overall, the increase in cereal import prices are dampened by the slight
leisure expressed as a share of households’ base expenditure. nominal appreciation of the domestic currency.
The extent of the agricultural supply responsiveness is, inter alia,
5. Results subject to the scarcity of production inputs. Incorporating seasonal
labor introduces further production constraints. This is reflected in the
The simulation results of the export ban scenario are analyzed with lower supply response of the seasonal model with cereal output in-
an emphasis on differences between the seasonal and annual labor creasing by only 7.5% compared to 10.5% in the annual model
market specification. First, summary results at the macro level are (Table 4). In the case of rice, the supply response of the annual model is
presented, followed by a presentation of changes in commodity prices 40% higher than in the seasonal model. Maize production changes only
and output. Changes on the factor market are presented in greater de- very slightly, because it is hardly traded. Maize output declines in the
tail, since this is where the model differences are most pronounced. seasonal model (0.6%), where maize is competing with the paddy
Subsequently, the implications of differences in factor market results on sector for (scarce) labor during the peak seasons. Other cereals are an
household consumption and welfare are described. Finally, the sys- aggregate of various cereals predominantly cultivated in the off-season,
tematic extent of the bias in model results is analyzed by simulating e.g., wheat, barley, millet, which results in a lower activity-specific
changes in cereal import prices ranging between ±50%. wage in the seasonal model (see also Fig. 5). Hence, output of other
cereals increases slightly more in the seasonal model (5.1%) than in the
annual model (4.9%). In both models, farmers shift from the production
5.1. Summary results
of other crops (vegetables, potatoes, spices and fruits) to cereals. Ve-
getables and potatoes are labor intensive and grown on rainfed land,
The hypothetical Indian export ban has a negative terms of trade
just as maize and other cereals. Their cost of production increases, since
shock, leading to a reduction in absorption and a reallocation of re-
labor and rainfed land prices increase strongly, yet output declines due
sources towards cereal producing activities (Table 3). The increase in
to an appreciating nominal exchange rate and lower domestic demand.
import prices boosts cereal production in Bhutan over the medium- to
Spices and fruits are less labor intensive and grown on permanent
long-term, increasing demand for arable land, agricultural capital and
cropland, which does not compete with cereal cultivation.
farm labor. The export ban only affects cereal import prices (due to the
higher transportation costs to import cereals from countries other than
5.3. Factor markets
India). Hence, cereal export prices are unaffected and there is only a
slight depreciation in the real exchange rate of 0.1%. In the model
The difference between the model setups emphasizes the treatment of
closures, investment and government expenditure volumes are fixed,
the rural labor market; this sub-section identifies the channels and me-
which requires absorption to adjust through household consumption.
chanisms in factor markets that explain differences in the annual and sea-
This results in a decline of real GDP, and reductions of average
sonal model results. Seasonality of labor has negligible effects on factor
household incomes and welfare.8 These effects are stronger in the
prices and supply within the formal (non-rural) economy. Factor prices of
seasonal model, since the readjustment process on the production side
non-farm labor and incorporated capital decline by similar magnitudes
(Table 5). The main causes are a drop in purchasing power leading to re-
8
Measured GDP and absorption exclude leisure. Leisure is included in the duced domestic demand for secondary and tertiary goods and services and
welfare measure. the reduced competitiveness of export-oriented sectors.

7
A. Feuerbacher, et al. Food Policy xxx (xxxx) xxxx

Table 4
Percentage changes in commodity prices.
SAM Sector or group Import %-changes
sectors name intensity (%)
Import price (in Import price in domestic Producer price Consumer price Output
foreign currency
currency)
Annual Seasonal Annual Seasonal Annual Seasonal Annual Seasonal
Model model Model model Model model Model model

1–10 Agriculture 30.2 12.0 10.2 10.2 1.7 2.1 3.1 3.4 1.1 0.2
1–7 Crops 26.8 23.2 20.9 20.9 2.4 3.1 5.5 6.1 2.7 1.5
1–3 Cereals 34.6 34.6 32.5 32.4 6.6 8.4 12.3 13.7 10.5 7.5
1 Rice, milled 42.7 35.9 33.8 33.8 8.8 11.2 15.5 17.2 16.7 12.0
2 Maize 3.1 51.7 49.4 49.3 3.4 4.8 3.5 4.6 0.2 −0.6
3 Other cereals 41.4 24.8 22.9 22.8 3.2 3.4 10.6 10.6 4.9 5.1
4–7 Other crops 18.7 −0.4 −0.4 −0.6 −0.6 −2.3 −2.4
4 Vegetables 25.2 0.9 0.8 0.3 0.2 −2.5 −2.4
a
5 Potatoes 9.5 see note below 1.0 0.8 1.7 1.6 −5.8 −5.7
6 Spices 23.7 −1.2 −1.2 −1.0 −0.9 −2.3 −2.7
7 Fruits 19.5 −1.0 −1.2 −1.0 −1.2 −0.7 −0.5
8–10 Livestock 35.1 0.5 0.3 −0.4 −0.5 −2.1 −2.2
11–12 Forestry 7.8 0.3 −0.9 0.1 −0.9 −0.7 −0.1
13 Mining 59.6 −1.6 −1.6 −1.6 −1.6 0.1 0.2
14–19 Food processing 46.5 0.9 0.9 0.0 0.0 −5.5 −5.8
20–21 Textile weaving 38.4 −0.7 −1.3 −1.1 −1.4 −1.2 0.0
17–22 Other 81.6 −1.5 −1.6 −1.5 −1.6 0.0 0.2
manufacturing
23 Electricity 0.3 −1.6 −1.6 −1.7 −1.7 0.3 0.4
24 Construction 5.9 −1.5 −1.6 −1.5 −1.6 0.0 0.0
26–32 Services 11.8 −1.5 −1.5 −1.5 −1.5 0.0 0.0

a
As a response to the appreciating nominal exchange rate, the import prices of all commodities except cereals, and export prices of all commodities decline by 1.5
and 1.6%, respectively.

The seasonal model generates consistently greater increase in farm
wages, in all AEZs (Table 5). Surprisingly, at first sight, this is accom-
panied by a decrease in farm labor supply in the first two zones and
only a low increase in labor supply in AEZ3. Both, the differences in
seasonal wage changes and the composition of aggregate leisure are the
main reasons (see next section). With less labor for cereal production,
total arable land increases only by 2.5% in the seasonal model, com-
pared to 3.1% in the annual model. Overall, land rents increase
strongly, because of increased demand for irrigated land for rice
production. The land rent and supply of irrigated land can increase
substantially more in the annual model, because it is complemented by
much cheaper labor. The actual difference in wage rates for labor used
in rice cultivation between both models is much higher than reported in
Table 5, as in the seasonal model rice cultivation requires labor in
periods of wage spikes (see also the results on activity-specific changes
in price of labor and Fig. 5). The land expansion, via the asymptotic
land supply curve, is dependent on the change in real land prices (de-
flated by the PPI), explaining the increases in rainfed land supply de-
spite low or slightly negative changes in nominal land prices.

Table 5
5.3.1. Farm labor wages and supply
Changes in factor prices and factor supply.
The changes in seasonal wages reflect the seasonal pattern of labor
Factor accounts Change in factor price (%) Changes in factor supply (%) requirement for cereal cultivation, predominantly rice (Fig. 3a). For
example, the strong increases in seasonal wages in the low altitude zone
Annual Seasonal Annual Seasonal
(AEZ1) during June, July and November, coincide with the periods of
Skilled labor −1.6 −1.6 −0.2 −0.2 land preparation, transplanting and harvesting of rice. Due to the colder
Unskilled labor −1.5 −1.6 −0.3 −0.3 climate, rice field operations occur about a month earlier in AEZ2 vis-à-
Farm labor – nationala 2.1 3.8 0.5 −0.1
vis AEZ1, and another month earlier in AEZ3. Hence, the pattern of
Farm labor - AEZ1 2.4 4.9 0.6 −0.7
Farm labor - AEZ2 2.8 4.7 0.6 −0.1 seasonal increases in farm wages occur in phase shifts across the AEZs.
Farm labor - AEZ3 1.4 2.1 0.4 0.3 Additional labor demand for maize production further exacerbates
Arable land national 5.4 3.4 3.1 2.5 seasonal labor shortages. Both single and double cropping of maize are
Rainfed land - national −0.9 −1.1 0.2 0.0 activities in the model. Of the two systems, double-cropping of maize
Rainfed land - AEZ1 −1.0 −1.8 0.1 −0.5
Rainfed land - AEZ2 −1.2 −0.6 −0.1 0.4
overlaps most with the rice transplanting period. Consequently, output
Rainfed land - AEZ3 −0.5 −0.9 0.5 0.2 of double-cropped maize decreases at greater rates in AEZ1 and AEZ2 in
Irrigated land - national 25.8 17.8 12.0 9.7 the seasonal model while in AEZ2 the output of single cropped maize
Irrigated land - AEZ1 23.1 14.8 13.0 9.7 increases.
Irrigated land - AEZ2 26.5 17.0 10.8 8.8
The results for seasonal wages cannot be compared with empirical
Irrigated land - AEZ3 28.2 22.9 12.3 11.2
Orchard land – national −2.2 −2.2 −0.9 −0.9 seasonal wage data. Farm labor transactions (hiring labor in and out)
Pasture land - national −5.7 −4.9 0.0 0.0 predominantly take place in months of peak labor demand and are not
Forestland - national −1.9 −1.4 −0.7 −0.2 recorded over time. Particularly in the lean season, there is no spot
Livestock - national 6.2 2.8 0.0 0.0 market for farm labor, i.e., the reported seasonal wages are shadow
Unincorporated capital 12.1 7.8 0.0 0.0
Incorporated capital −1.6 −1.6 0.0 0.0
wages. Nevertheless, the results are consistent with field observations
and records of farmers reporting labor shortages in the rice trans-
a
Changes in aggregate farm labor computed based on farm labor used within planting and harvesting season. Seasonal wages decline in months with
productive boundary, excluding leisure. low or no labor demand by cereal activities (Fig. 3a). Non-cereal

8
A. Feuerbacher, et al. Food Policy xxx (xxxx) xxxx

activities reduce their demand for seasonal labor due to reduced con-
sumer demand and a decline in competitiveness. Furthermore, due to
the rigid pattern of labor demand for cropping, non-cereal crop activ-
ities also have to reduce labor demand in those months with little or no
competition with cereal activities.
Farm wages increase less in the annual model, but the increased
supply of farm labor is greater (Fig. 3b). The difference is explained by
how the assumption of perfect intertemporal substitution affects the
mechanisms of farm labor mobility and supply in the annual model.
First, it allows for perfect mobility of farm labor across activities, in-
dependent of the periods in which labor is supplied or demanded (see
also the results on reallocation of labor). Second, the changes in the
aggregate price of leisure for agricultural households is mostly de-
termined by the annual change in farm wage. Consequently, the

AEZ1 - Humid subtropical zone

29.9
30

Avg. of
20
seasonal model, 4.9
11.9 12.3
10 Annual model, 2.4
0.8 1.5
0
-2.1 -0.8
-2.9 -3.0 -2.9 -3.5 -2.3

-10

AEZ2 - Dry subtropical zone

% farm labor wage changes

30 27.5

20 Avg. of
seasonal model, 4.7 14.2 14.3

10 Annual model, 2.8

4.5

0
-2.2 -1.0 -1.0 -1.2
-3.4 -3.1 -2.8 -2.4

-10

AEZ3 - Temperate zone

30

20 Avg. of 17.4
seasonal model, 2.1 12.8
10
Annual model, 1.4
3.9
1.6
0
-2.0 -0.7 -1.1 -1.3 -2.1 -1.8
-3.3 -2.2

-10
Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec
Months
Seasonal Annual Avg. of
model model seasonal model
Fig. 3a. Changes in farm labor wages. Source: Own model results.

9
A. Feuerbacher, et al. Food Policy xxx (xxxx) xxxx

AEZ1 - Humid subtropical zone

Annual model, 0.6

1.0
0.5
0.1 0.2 0.1
0.0
-0.5 -0.5 -0.4
-1.0 -1.0
-1.0 -1.1 -1.1
-1.2
-1.5
Avg. of seasonal -1.7
-1.7
model, -0.7

AEZ2 - Dry subtropical zone

% farm labor supply changes

Annual model, 0.6

1.0 0.5 0.6 0.7
0.5
0.2
0.0
-0.2 -0.2 -0.2
-0.5 -0.5 -0.5
-0.5 -0.6 -0.6
-1.0 Avg. of seasonal
-1.5 model, -0.1

AEZ3 - Temperate zone

Annual model, 0.4
Avg. of seasonal
1.0 0.9
1.0 model, 0.3
0.4
0.5 0.1 0.1 0.2 0.2
0.1 0.0 0.1 0.1
0.0
-0.1
-0.5
-1.0
-1.5

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec
Months
Seasonal Annual Avg. of
model model seasonal model
Fig. 3b. Changes in farm labor supply. Source: Own model results.

increase in the composite wage results in an increase in the aggregate
price of leisure (Table 6). In this model, despite substantial increases in
household income, labor supply by agricultural households increases,
reflecting the domination of the substitution effect of labor moving out
of leisure over the expansion effect, which works in the opposite
direction (see Appendix F).
The effects of the labor-leisure trade-off are less straightforward in
the seasonal model. The change in the aggregate price of leisure
(Table 6) differs from the change in labor income, mainly because the
share of leisure in time use varies over seasons (see Fig. 2). In periods of

10
A. Feuerbacher, et al. Food Policy xxx (xxxx) xxxx

Note: A negative (positive) expansion effect (E) reported in the last column means that the change in utility is dominant leading to positive (negative) labor supply. A negative (positive) substitution effect denotes that the
labor shortages, seasonal leisure is scarce, because most household time
is absorbed by activities within the production boundary. Conversely,

Seasonal model
in lean months disproportionately more leisure time is available to
Domination of expansion (E) or

households. Allowing for some intertemporal substitution of leisure,

households can substitute leisure in periods with strong increases in
wages by consuming more leisure in periods of declining seasonal
substitution (S) effect

E
E
S
S

S
S
S
S
S
wages (see Fig. 3b). Accordingly, the composite price of seasonal leisure
either drops or increases at substantially lower rates than the average
Annual model

income from labor (Table 6). Hence positive substitution or expansion

effects are observed, which dominate the labor-leisure trade-offs with
consequent declines in labor supply.
-E
-S
-S
-S
-S
-S

S
S
S
% changes in household total labor

Seasonal model

5.3.2. Reallocation of farm labor

The bias in model results is transparent when investigating the
differences in allocations of farm labor across activities. In the annual
−0.71
−0.56
−0.32
−0.07
−0.02
−0.02
−0.19
−0.23
−0.27

model, the perfect mobility across activities allows for unrealistic re-
allocations of labor from counter-cyclical activities, like forestry and
textile production, to cereal production (Fig. 4). Counter-cyclical ac-
Annual model

tivities account for 16.3% of reallocated labor in the annual model,

compared to only 3.9% in the seasonal model. Flows of labor from li-
−0.17
−0.22
−0.24
supply

0.15
0.23
0.13
0.47
0.10
0.07

vestock to cereal activities play a much more important role in the

seasonal model, accounting for 50.3% of labor flows compared to
Seasonal model
% change in composite price of

37.1% in the annual model. Most striking are the differences of labor
supply from leisure. Consistent with Sen’s observation, the annual
model leads to an effective increase of labor endowment. Assuming
−0.71
−0.28
−0.30
0.78
0.27
1.24
0.61
0.71
0.37

perfect intertemporal substitution allows for an increase in labor units

price difference between utility and leisure is dominant leading to positive (negative) labor supply. See Appendix F for more details.

supplied in peak periods by reducing leisure in slack periods. This effect

Annual model

accounts for 18.1% of the reallocated labor in the annual model. In the
seasonal model, with heterogeneity of labor over time, labor supplied
−0.70
−0.30
−0.32
utility

during peak periods increases marginally, but overall there is a higher

0.96
0.52
1.28
0.72
0.70
0.34

demand for leisure accounting for 6.5% of the reallocated labor. These
mechanisms and channels explain the greater reallocation of labor in
Seasonal model
% change in composite price of

the annual model: 3.0% of total available farm labor flows to cereal
activities, compared to 1.9% in the seasonal model.
−0.46
−0.66

−0.51
−1.64
−1.58
−1.63
0.92
0.63
0.48

5.3.3. Activity-specific price of composite farm labor

In the seasonal model, each seasonal activity has a specific pattern
Annual model

of labor demand. Because the changes in seasonal wages can differ, the
price changes of composite farm labor are activity specific. Composite
−0.34
−1.59
−1.54
−1.58
leisure

1.31
0.78
1.90
1.50
0.76

price changes of agricultural labor are highest for activities that depend
on labor supplied during bottleneck periods such as for rice and maize
% change in composite wage

in AEZ1 (Fig. 5). Activities with counter-cyclical labor demand com-

pared to paddy and maize (e.g., forestry or textile weaving) benefit
Seasonal

−0.50
−1.55
−1.58
−1.56

from a falling composite price of seasonal labor. Consequently, in the

model

2.00
1.11
2.53
1.86
0.98
Determinants of households’ labor supply via the labor-leisure trade-off.

seasonal model the aggregate output of forest products (0.1%) and

textiles (0.0%) remains stable but declines in the annual model (0.7%
and 1.2%, respectively) (see Table 4).
Annual

−0.58
−1.52
−1.55
−1.53
model

1.48
0.73
1.98
1.40
0.74

5.4. Household consumption and welfare

% change in household utility

Agricultural households spend the largest share of income (54%) on

food, which includes home production for home consumption. Hence,
Seasonal

−0.18
−1.01
−0.80
−1.28
−1.12
model

food price rises disproportionately affect their cost of living. The impacts
0.43
0.70
0.66
0.58

in terms of food security, approximated by food consumption, are more

adverse in the seasonal model (Table 7), which also reports higher food
prices. Despite the decline in food consumption, agricultural households in
Annual

−0.04
−1.06
−0.81
−1.25
−1.17
model

both models increase household consumption of real goods and services,

0.50
0.19
0.83
0.15

i.e. excluding leisure, due to higher household income. The seasonality of

labor leads to two structural differences reflected in the consumption and
Farm household

Farm household

Farm household

Other income households

welfare measures. First, the relatively higher farm labor wages and lower
Unskilled households

land rents in the seasonal model (Table 5) favor landless households

Skilled households
Landless

Landless

Landless

whose consumption and welfare increase more (or decrease less) in the
annual model. And second, the lower aggregate prices of leisure result in
Households

either positive dominant expansion or substitution effects increasing lei-

Table 6

AEZ1

AEZ2

AEZ3

sure consumption in the seasonal model compared to a consistent drop in

leisure consumption in the annual model (see Appendix G for detailed

11
A. Feuerbacher, et al. Food Policy xxx (xxxx) xxxx

1200

800

1000 person-days
400

-400

All Other Other Food Community Textile

Rice Maize Livestock Leisure
Model setup cereals cereals crops processing forestry weaving
Annual model 1135 1095 -10 50 -186 -425 -130 -113 -73 -207
Seasonal model 711 711 -49 49 -192 -409 -131 -19 -12 53

Fig. 4. Net reallocation of farm labor. Note: Measured in thousand person-days across seasonal activities and leisure aggregated at the national level.

15
Seasonal model Annual model
11.9 Avg. of seasonal model
10 9.7
% changes

6.0 5.6 Avg. of seasonal model, 4.9

4.5
5 3.9 3.5 3.5 Annual model, 2.4
1.8
0.3
0
-0.4 -0.4 -0.0
-1.8

-5
Rice Double Single Other Veg. early Veg. late Potato Spices Fruits Cattle Other Dairy Community Textile
cropping cropping cereals season season husbandry animals production forestry weaving
maize maize
Rural economic activities in AEZ1

Fig. 5. Changes in the activity specific price of composite seasonal labor within AEZ1.

Table 7 5.5. Evidence for a systematic bias

Changes in welfare and household consumption.
Welfare incl. leisure Share total pop. (%) Change from base year (%)
In addition to the export ban scenario, changes in cereal import
prices ranging between ±50% are simulated. Summary results of the
Annual Seasonal export ban and a variant with the exact opposite effect, i.e., a decrease
model model in cereal import prices by 35%, are presented in the supplement
Average household 100.0 −0.53 −0.56
(Appendix H). The scenarios with positive or negative changes in im-
Non-agricultural 52.9 −0.99 −0.99 port prices demonstrate a systematic bias if seasonality of labor is ig-
households nored.
Agricultural households 47.2 0.40 0.30 The percentage changes in farm wages, the driving force behind all
Farm households 43.8 0.46 0.34
the results, are consistently greater, i.e., more negative and more po-
Landless households 3.4 −0.48 −0.23
Consumption of Share of household sitive, in the seasonal than in the annual model (Fig. 6a). Despite the
agricultural consumption (%) greater changes in farm wage rates, the farm labor response is not
households straightforward; the interaction of income and substitution effects in
Household consumption 100.0 0.34 0.01 the labor-leisure trade-off, and changes in the output mixes by farmers,
Food 54.5 −1.60 −2.11
Non-food items 45.5 2.66 2.55
produces a decline in farm labor supply in the seasonal model as cereal
Leisure 20.7 −0.11 1.10 prices increase (Fig. 6b). On the other hand, in the annual model labor
supply increases with higher cereal prices. In the event of decreasing
cereal import prices, the seasonal model interestingly reports an in-
crease in labor supply. This is because labor demand only declines in
results on household consumption). Both factors lead to a generally lower
the cereal cropping period, which is when wages decline most. Yet,
household consumption level in the seasonal model. This divergence in
outside the cropping period seasonal wages increase leading to a
household consumption is similar, in terms of welfare, measured as Slutsky
smaller drop in the price of leisure than in the annual model. Conse-
equivalent variation (EV) including leisure. Welfare results differ ac-
quently, the expansion effect dominates resulting in increasing labor
cording to households’ income composition. For the average farm (land
supply.
owning) household welfare increases by 0.5% in the annual model, but
Since farm wages are less elastic to changes in cereal prices in the
only by 0.3% in the seasonal model (Table 7). This is due to the larger
annual model, land supply is more elastic (Appendix I) allowing for a
price response and smaller increases in the land rents in the seasonal
systematically higher agricultural supply response (Fig. 6c). In case of
model. In contrast, in the annual model landless households experience a
the seasonal model, land supply increases less strongly and due to lower
higher loss in welfare, because of the lower increase in agricultural wages.
farm labor supply and higher agricultural wages, aggregate agricultural

12
A. Feuerbacher, et al. Food Policy xxx (xxxx) xxxx

Fig. 6. Aggregate changes in farm wages, farm labor supply, agricultural supply and agricultural household welfare depending on changes in cereal import prices.
Note: Welfare changes are measured by the Slutsky equivalent variation incl. leisure expressed as a share of households’ base expenditure.

supply hardly increases. In comparison with the annual model, culti- households owning land.
vation becomes less labor intensive (measured in person-days per
hectare) and increases in cereal production are accompanied by 6. Robustness of model results
stronger declines in non-cereal output. The last panel (Fig. 6d) shows
that the systematic bias in the changes of factor prices and supply also Sensitivity analyses were conducted to test the robustness of model
results in different changes in income and welfare for landless and farm

Table 8
Description of sensitivity analyses.
Sensitivity analysis Description

Sigmasea The seasonal labor substitution elasticity, a,t , is varied by ± 50%. The elasticity of formerly rigid activities remains zero when decreasing the elasticity and
is set equal to 0.1 when increasing the elasticity.
Intertemp The IES set at 0.2 is varied to encompass the empirically plausible range from 0.1 to 1.2.
MinMaxLei The income elasticity of labor supply, H , Y of agricultural households is varied between the minimum and maximum possible quantities of leisure. This
results in lower bound income elasticities of labor supply of 0.25 (AEZ1), 0.18 (AEZ2) and 0.14 (AEZ3) and an upper bound elasticity of 1.38 for all AEZs
(such that the time endowment equals 365 days).
LandEla The land supply elasticity, n , is varied by ± 50%
SeasMigr The model is changed to allow for rural-rural seasonal migration among AEZs. The database is modified, assuming that each seasonal activity receives about
10% of its farm labor demand from the other two regions. Two simulations are run assuming seasonal labor to be substitutable across AEZs with a CES
elasticity of 0.8 and 2, respectively.

13
A. Feuerbacher, et al. Food Policy xxx (xxxx) xxxx

Crop Crop Cereal Cereal Arable land Land Farm labor Farm labor Reallocated
output prices output prices supply prices wages supply farm labor
4.0
+50%

3.5
Min Reference (Difference in results
+50%
0.1 between annual-seasonal)
Deviation from reference by
3.0 sensitivity analysis variant
Percentage point difference

0.8

+50%
2.5 Max -50%

2 +50% Min
-50% 0.1 +50%

2.0 1.2 +50% -50% 0.8

+50%
Min

Max 0.1 +50%

0.8
0.1 Min 2
1.5 +50% -50% -50% -50% 0.8
Min +50%
0.1 +50% 2
-50% 1.2
Max Max 0.1 Min +50%
0.8 -50% 1.2 2
1.0 Max -50% 1.2
0.8
2 +50% +50% Min Max -50%
-50% 0.1 Min +50% 2
+50% Min +50% +50%
1.2 0.1 0.1 -50%
0.8 0.8 0.8 1.2
Max
0.5 -50% 1.2
-50%
2
-50%
-50% 1.2 Max -50% 2 -50% 1.2 Max 2

0.0
Reference
Sigmasea
IES
MinMaxLei
LandEla
SeasMigr

Reference
Sigmasea
IES
MinMaxLei
LandEla
SeasMigr

Reference
Sigmasea
IES
MinMaxLei
LandEla
SeasMigr

Reference
Sigmasea
IES
MinMaxLei
LandEla
SeasMigr

Reference
Sigmasea
IES
MinMaxLei
LandEla
SeasMigr

Reference
Sigmasea
IES
MinMaxLei
LandEla
SeasMigr

Reference
Sigmasea
IES
MinMaxLei
LandEla
SeasMigr

Reference
Sigmasea
IES
MinMaxLei
LandEla
SeasMigr

Reference
Sigmasea
IES
MinMaxLei
LandEla
SeasMigr
Fig. 7. Sensitivity analysis of variations in model parametrization. Red bars report the absolute percentage point difference in main indicators between the seasonal
and annual model in the reference setting. Yellow bars show the positive and negative deviation from the reference model in percentage points for changes in model
parameters described in Table 8. Labels at the lower and upper end of the yellow bars refer to the respective change in the model parametrization.

results to changes in model parametrization and setup (Table 8).9 The differences. Accounting for rural-rural seasonal migration substantially
base elasticities used were estimated, derived from the literature (Ap- reduces seasonal wage differentials in the seasonal model and leads to
pendix A), or, where no estimates were available, imposed. The elas- smaller model differences. But the patterns of seasonal labor demand
ticities varied are those that have most influence on the difference in across AEZs are not complementary and peak labor months partially
results between the annual and seasonal model: details of the sensitivity overlap, which limits the potential of labor exchanges (Appendix E).
analyses are reported in Table 8. In addition, a variant of the model
setup is included allowing for seasonal rural-rural migration across 7. Discussion
AEZs with different degrees of spatial labor mobility. Seasonal migra-
tion was not included in the core analysis, due to its minor role for Seasonality affects rural livelihoods in multiple ways, e.g. through
Bhutan and a lack of data. seasonal food shortages and hunger (Vaitla et al., 2009), seasonal in-
The sensitivity analyses demonstrate that changes in main model cidences of diseases and births (Chambers et al., 1981; Devereux et al.,
parameters do not change the signs on the key results although they do 2012) and seasonal labor shortages and underemployment. The season-
influence the magnitudes; hence the main findings from the core analysis ality of labor demand is particularly relevant as labor units cannot be
remain valid (Fig. 7). Variations in the intertemporal substitution of leisure substituted across time. While seasonality of labor is a recognized phe-
(sigmsea) produced the largest changes in the results (measured in per- nomenon within agricultural economics, most economy-wide models
centage points). Given that seasonal leisure includes reproduction activ- have, implicitly, assumed perfect intertemporal labor substitution. This
ities, which have limited substitution possibilities in low income countries, study relaxes this assumption and the results demonstrate the importance
an IES of the upper end (1.2) is high. The differences in model results of accounting for seasonality of labor in low-income economies.
remain substantial and would only become very small when applying a Ignoring seasonality produces a systematic upward bias in model
very large IES (differences in model results disappeared with an IES of >8). results, particularly agricultural supply and welfare changes, due to
The second largest changes come from variations in the seasonal overstating the labor supply response through the assumption of perfect
labor substitution elasticity. When the assumption of non-substitut- intertemporal substitution. This conclusion is logically consistent in a
ability of seasonal labor, i.e. Leontief technology, is relaxed (substitu- constrained optimization problem: the presumption of perfect inter-
tion elasticity of 0.1) cropping activities can substitute labor originally temporal substitution relaxes a constraint. This study identifies two
required in peak periods with labor from other periods in which wages main sources for the biases. First, ignoring the seasonality of labor
increase at lower rates or even decline. In practice, some substitution is (annual model) overestimates the labor mobility between economic
possible among field operations, e.g., reductions in the labor demand activities with different seasonal labor demand patterns. This produces
for transplanting paddy (“sloppier transplanting”) may be compensated unrealistic labor reallocations, e.g., labor used to produce rice, a
by increased diligence when weeding; although such substitutions may summer activity, is drawn from forestry, a winter activity. And second,
result in reduced productivity. This is over and above the flexibility neglecting the seasonality of leisure distorts households’ labor-leisure
offered by reducing leisure time within a month. trade-off decisions, where leisure time is available in slack periods, i.e.,
The remaining variations all result in relatively small changes. The counter-cyclical to the cropping periods. Consequently, models with an
model differences are amplified/reduced with lower/higher calibrated annual labor market specification will report a stronger labor supply
quantities of leisure; greater (assumed) quantities of leisure dampen the response than models with seasonal labor markets.
seasonal constraints. A lower elasticity of land supply mainly reduces These systematic upward biases in agricultural supply responses and
the agriculture supply response in both models. A short-term analysis, structural changes are inter alia relevant when assessing the economy-wide
with no land expansion and reallocation, results in very low model effects of food security (e.g., Golub et al., 2013) or agricultural trade lib-
eralization scenarios (e.g., Anderson et al., 2006) and can be important to
the distribution of income and welfare results. For example, the seasonal
9
In addition, the macroeconomic closure settings were varied by either fixing labor specification results in higher farm wages and substantially lower
the exchange rate or using a savings driven closure. Differences in model results land rents in case of a cereal import price increase in Bhutan, and will thus
were very low and are therefore not reported. produce greater benefits for landless households compared to farm

14
A. Feuerbacher, et al.
households.
New technologies, especially if labor saving, and seasonal migration
will mitigate these phenomena. Many developing countries report
seasonal migration. Sensitivity analysis demonstrates that seasonal
migration reduces wage differentials, but unless it produces perfect
intertemporal substitution, the seasonality constraint will persist. The
limited reductions in wage differentials from seasonal migration are
consistent with empirical observations, in countries such as India,
where despite seasonal migration seasonal labor shortages and under-
employment are common (Reddy et al., 2014). Incorporating season-
ality in economy-wide models allows future studies to explicitly model
seasonal migration and beyond that to account for realistic rates of
seasonal underemployment, which otherwise would be included within
annual underemployment (McCullough, 2017).
While not at the core of this study, the empirical analysis of the
impact of an Indian cereal export ban on the Bhutanese economy shows
that even large changes in import prices of cereals will have limited
welfare implications for Bhutanese households. Increases in cereal im-
port prices of 35% will, on average, reduce household welfare by 0.5%
and reduce average food consumption by some 2.7%, although the
distributional impacts are more pronounced. Results are broadly con-
sistent with the literature on food-price impacts (e.g. Arndt et al.,
2008). The muted results reflect the model’s medium-term horizon
closure allowing for land reallocation within Bhutan’s agriculture
sector. The economy-wide changes would differ substantially in a short-
term horizon with no possibility of land reallocation.
7.1. Potential extensions and avenues for further research
The analyses can be further developed. Data limitations preclude the
differentiation of labor types by gender and age profile and the differ-
entiation of ‘leisure’ activities between ‘pure’ leisure and social reproduc-
tion. The implications of relaxing these limitations will depend upon the
extent to which roles are rigidly segmented by gender, school holidays
coincide with peak labor demands and the opportunity costs of trading-off
leisure and social reproduction for agricultural labor services change.
Further research is also needed to improve the understanding of seasonal
activities in and outside of the production boundary, particularly con-
cerning the role of gender and social reproduction (Fontana and Wood,
2000). Such developments may increase or decrease the degree of inter-
temporal substitution, but they cannot fully relax the constraint imposed
by imperfect intertemporal labor substitution.
Similarly, the model could be formulated as a dynamic model to
evaluate, inter alia, the implications of demographic change (see Aragie
et al., 2017) and the introduction of labor-saving technology changes.
Particularly in case of the latter, a model with seasonal labor markets
would allow for an improved assessment of technologies, which miti-
gate seasonal labor bottlenecks, e.g., the mechanization of paddy
transplanting. Further model developments in this direction should
account for the nuances of seasonality which have not been addressed
in this article, such as the limited substitutability of machinery with
specific seasonal usability, e.g., a plough cannot be transformed into a
harvester in the short run and vice versa. Machinery also has a limited
seasonal capacity, i.e., it can only be used for a certain amount of time,
while farmers often demand labor-saving machinery at the same time.10
In other contexts it would be important to account for seasonality of
irrigation water flows or that increasing heat stress due to climate
change reduces labor productivity seasonally, but not necessarily all
year round. These aspects may be addressed using an multi-period
model with sequential decision making as already explored in the
micro-level model literature (Antle, 1983; Fafchamps, 1993; Taylor and
Charlton, 2019).
10
We are grateful to an anonymous referee for highlighting this.
15
Food Policy xxx (xxxx) xxxx
7.2. Conclusion
This paper reports on the first economy-wide model that incorporates
seasonal labor markets on a national scale. The simulations provide evi-
dence that ignoring seasonal labor demand systematically biases the results
with marked implications for agricultural supply response, income and
household welfare. The findings are empirical and model validations of
Amartya Sen’s insight that “it is somewhat misleading to speak in terms of a
homogeneous unit of labor” in the context of agriculture (Sen, 1966,
p. 440). Importantly, the nature of the bias demonstrated in this study has
implications for the interpretation of the results for the agricultural sector
derived from economy-wide models and for policy design based on such
model analyses. For instance, studies of global agricultural trade liberal-
ization will overestimate agricultural supply responses in developing
countries because of implicit labor endowment effects. Similarly, single
country studies of the implications of increases/decreases in global food
prices will over/under estimate the labor supply responses. These implica-
tions point to a need to improve the modelling of labor markets, especially
rural labor markets, even when this requires confronting data challenges.
CRediT authorship contribution statement
Arndt Feuerbacher: Conceptualization, Data curation,
Investigation, Visualization, Writing - original draft. Scott McDonald:
Conceptualization, Writing - review & editing. Chencho Dukpa: Data
curation, Validation, Supervision. Harald Grethe: Conceptualization,
Writing - review & editing, Supervision.
Declaration of Competing Interest
None.
Acknowledgements
This study was funded by a field research grant of the fiat panis
foundation (Ulm, Germany) and by a PhD scholarship of the University
of Hohenheim. Institutional support by the Humboldt-Universität zu
Berlin and Bhutan’s Ministry of Agriculture and Forests is gratefully
acknowledged. The authors thank three anonymous referees for their
valuable and constructive comments that helped to improve the article.
Furthermore, the authors would like to thank Kinley Tshering, Tulsi
Gurung, Phub Dorji, Mahesh Ghimiray, Thomas Daum, Jonas
Luckmann, Anton Orlov, and Khalid Siddig as well as participants of the
30th International Conference of Agricultural Economists in Vancouver
for their helpful comments on previous versions of this study.
Appendix A. Supplementary material
Supplementary data to this article can be found online at https://
doi.org/10.1016/j.foodpol.2020.101875.
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