Subsidies and agricultural employment: The education channel
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Agricultural employment in industrialized countries has been steadily decreasing despite
important levels of farm subsidies. In this paper we provide a new explanation for this
puzzle, namely the positive impact of subsidies on the education level of farmers’ children.
If farmers are credit constrained, they may underinvest in their children’s education. By
increasing farmers’ incomes, subsidies increase investment in education. If more educated
children are less willing to become farmers, in the long term subsidies may lead to a
reduction of labor supply in the agricultural sector. We provide both theoretical and
empirical evidence supporting this argument.
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