The Labor Market as a Smoothing Device: Labor Supply Responses to Crop Loss in Indonesia

This paper studies the importance of labor supply responses in enabling households to smooth consumption in the face of crop loss. The 1993 Indonesian Family Life Survey is unusual because it contains self-reported information on crop loss and on household responses to crop loss. 41.6 percent of households who reported a crop loss also reported that they responded by increasing their labor supply. Using these self-reported measures, we Þnd evidence which suggests that the income associated with this shock-induced labor supply is important in allowing the household to avoid reducing consumption expenditure. Household members also do not need to increase their total hours of work as the crop losses appear to reduce the value of their time in household farming allowing them to take on extra jobs.