Education, Labor Supply, and Market Development in Rural Peru

Research suggests that education has a limited effect on subsistence farm productivity. Yet, rural incomes include more than farming as households diversify their income portfolios. Furthermore, education may affect the number of labor hours supplied. Utilizing data from Peru, this paper finds that farm households benefit from more education by finding more lucrative opportunities, characterized by fewer hours. The extent to which this is possible depends on how well local markets are developed. Since education policy takes time to yield returns, policy makers have an additional tool at their disposal: improving market access will also increase the returns to education. (C) 2008 Elsevier Ltd. All rights reserved.