The effect of drought on household occupation choices in rural India

Droughts are becoming increasingly common in India, where 50 per cent of the labour force works in agriculture, and most agricultural production is rainfall-dependent. This paper investigates the extent to which rural households adapt to drought – defined as rainfall deficiency – by reallocating labour from agriculture to other sectors of the economy. We estimate a household-level fixed-effects regression model and find that household agricultural employment declines in the year following a drought. Furthermore, these effects are mediated by job skills and land ownership. We find that households with working members who have completed primary education account for most of the workers who exit the agricultural sector. In contrast, we find that households that own land increase their agricultural labour share after experiencing a drought. Thus, while we find that drought causes households to diversify away from agriculture on aggregate, the extent of this structural change is mitigated by the behaviour of landowners.