EiL1S ('0.-E

McNamaraLfi s TIA': I L)N DEvEi,LPiM;! A! Fellowships . ANU)N. OiilE

1,, 'P Pogram i'j A I. o &'5: Lizptb Id; t4H~-'AMARS E......9tss-.. ..... :hA

Legislation, Developmentand Legislating Developmentin Brazilian Rural Labor Markets

The Sugarcane Cutters of Pernambuco

Julie Anderson

Economic Development Instituteof the World Bank

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

LEGISLATION, DEVELOPMENT AND LEGISLATINGDEVELOPMENT IN BRAZILIAN RURAL LABOR MARKETS

The Sugarcane Cutters of Pernambuco

Julie Anderson

(This paper is part of a series of papers by McNamara Fellows, and is, at this time,intended for Bank circulation for preliminary review and comments. If you havecomments on this paper, please forward them to The Administrator, McNamaraFellowships Program, Room M-4031.)

The Robert S. McNamara Fellowships ProgramThe World Bank

Washington, D.C.

Copyright0 1980-i4e Intemational Bank for Reconstruction and DevelopeantfREH WORLD BANKThe Robert S. McNamara Fellowships Program1818 H Street, N.W.Washington, D.C. 20433, U.S.A.

An rights reserved

The Robert S. McNamara Fellowships Program was established In 1982 to honor theformer President of the World Bank. Fellowships are awarded each year to outstandingscholars trom developed and developing member countries of the Bank who wish to caryout research activities in the area of economic development. The program is administeredby the Economic Development Institute of the World Bank.

AbuLt thAuthor

Dr. Julie Anderson, a national of the United States, holds a Ph.D Degree from YaleUniversity, majoring in Economics. She was awarded a 1988 McNamara Fellowship tocarry out research in Brazil on Brazilian Rural Labor Markets. Currently, Dr. Andersonis Assistant Professor of Economics at Standford University, California.

The findings, interpretations, and conclusions expressed in this document are entirelythose of the author(s) and should not be attributed in any manner to the Robert S.McNamara Fellowships Program, the World Bank, to its affiliated organizations, or themembers of its Board of Executive Directors or the countries they represent.

ACK WLRD0RMBNT

Funding from the World Bank's McNamara Fellowships Program is gratefullyacknowledged. The field work would have been impossible without the dedication ofinterviewers Agadir de Faria Flho, Dbora Gonaives Ferreira, Doracy Lopes Moura deMebo and Jairo Pessoa de Albuquerque, the research assistance of Consuelo Costa Siqueira,and the guidance of researchers and technicians at EMATER-PE, Fundtspo JoaquimNabuco, INCRA and IPA. Avner Greif and John Strauss provided helpfiul comments on anearlier draf.

Table of Contents

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . 1

II. Changes in Permanent and Temporary Employment, Zona da Mata,1960-1989 . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Census Evidence on Permanent and Temporary Employment,1960-1980.. .... ............... 3

Sample Survey Evidence on Permanent and Temporary Employment,1979-89 . . . . . . . . . . . . . . . . . . . . . . . . . . 4

III. Framevork for Analysis . . . . . . . . . . . . . . . . . . . . 6

The Nature of Permanent Contracts In 1960 ... . . . . . . . 6

Economic Rationales for the Existence of Such Contracts . . . 8

Agricultural Production and Labor Demand . . . . . . . . . . 10

Labor Supply and "General Equilibrium Comparative Statics" . . 12

IV. The Rural Labor Statute-of 1963 and the Decline of PermanentEmployment. . . ... 14

The Rural Labor Statute . . . . . . . . . . . . . . . . . . . 14

Resulting Changes In the Nature of Permanent Labor Arrangements 17

Qualitative Effects on the Volume of Permanent Employment . 18

Attributing Significance to the Effect of Leglslation onPeranent Employment . . . . . . . . . . . . . . . . . . . . 19

V. *Economic Development" and the Rlse of Modern PermanentContracts . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Economic Developments In the Zona da Mata during the 1970s . . 21

Implications for the *Economic Development Debate" . . . . . . 2Z

VI. Rural Crdilt ad th, PRcont Relative Decline la Permanentlqploymnt . . .. . .. ., 23

VII. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Appondlx *Th. 1989 Survey and the Constructlon of ProbabllltyV(,igts* .... . . . . . ... ........ . . 26

Tables . . . .. . *. .. . . . . . . . . . . . . . . .. . 32

References .... . . . . . . . . . . . . . . . .. . . . . . 39

L Introduction

Me nature of agricultural wag labor arra n merits atteition InBrazil, where a class of tempoary agricultural workers "as rismn in size andvisiblUty over the last three decades. Called bo[as-frig these workersare characterized as living on the edges of small towns, sellng their laborIn early mornng auction markets for low cash wages, being carried by truck toemployers' farm each day they find work, and facing hig probabilities ofunemployment In slack agricultural seasons. The rise of the temporary workersIs of great concn In the sugarcane-producing coastal zone of Pernambuco,where both temporary and permane employees find steady work cutting caneduring the four- to six-month harvest season, but only peanent employeeshave steady work during the rest of the year. Temporary workers released fromagriculture durin the slack seas find little nonagricultural employment, sotheir lncomes drop sharply; and such seasonal reductions in income arecosBidered especially deleterious to the welfare of workers who have littleability to smooth consumption through borrowing. Increased seasonality inagricultural employment, which taes the form of a reduction in permanentemploynent as a share of total harvest season employment, may generate broadersocial costs as well, by lnducing seasonal Increases In theft, prosttutionand urban unrest, and increased seasonal migration of household heads awayfrom their families. Thus Infercs about the effects of agriculturaldevelopment on the welfare of both the rural poor and smvall town dwellersrequire examination of changes In the mix between permanent and temporyaricultural employment. as well as changes in total peak season employmentand wage levels.

This paper assembles evidence concerning the patterns of change Inpermanent and tempoary employment in the Zom a b1ata (humid coastal zone) ofPernambuco over the last three decades, and analyzes the forces generating theobserved patterns. Tb paper's conclusions shed light on the roles of rurallabor legislation and of 'economic development In transforming rural wagelabor markets. Section 11 uses Agricultural Census data to argue thatpermanent employment fell both absolutely and as a share of total employmentduring the 1960s, but rose In both absolute and relative terms during the1970s. Then estimates of population ratios of pewmanent employment to totalhavest season employment, consruced 'rom a 1989 sample survey, are used todemonstrate that though per_ma employment rose slightly In absolute termsthrough the early- and mid-1980s, It fell significanty as a share of totalharvest season employent.

Secton m sets the stage for analyzing the forces behind thesepatters, by sketching out a comrehesive model of the supply of and demand

I Amng academics and cansus takers these workes are often called xo1g.Anor mobile workes. As Gomes da Silva and Silva Rodrigus (p. 57) note, amnmber of regonal names aid in describing this hbor Institution. Thetemporar worker is referred to as avul or disattached; qJjh, or heavypestle, of which the movement in the truck Is reminiscent; and Sbad2jIng,or clandestine, not having offical employment papes Mia-tria is the slang

prOession with broadest usage, and refers to the cold lunch thse workersmust eat as a reslt of working at some distance from home.

I

for permanent and temporary labor. This requires first presenting a carefuldescriptico of the permanent employment relationshps prevalent at thebegning of the period. thtn providing eoic rationales for the exstenoeof such contracts and for their coexistence with temporay employment, anddeveloping more detailed models of the supply and demand for permanent andtemporary labor. Within the resulting framework of analysis, a reasonablycomplete 11st of candidate explanations for change in the structure of rurallabor markets In the Zona da Mata may be derived.

Section IV argues that rural labor legislation Introduced In 1963, whichrequired employers to pay indemnities for fiing workers without 'Just cause,'induced fundamental change in the scope and structure of relationships betweenpermanent employees and their employers. These changes increased the relativecosts and reduced the relative benefits of hiring workers under permanentcontracts and induced farmers to substitute away from permanent labor. Thequantitative significance of these effects Is established by observing thatnone of the other determinants of rural labor market structure identified inSoction 111 were changing significantly in the direction predicted to induce areduction in the permanent employment share during the 1960s. The effect ofthe legislation must have been great enough to counteract other slighttendencies for an increase in the permanent employment share and to producethe observed absolute and relative decline in permanent employment.

The changes underlying the absolute and relative growth of permanentemployment in the 1970s are addressed in Section IV. Both tightening labormarkets and greater access to increasingly cheap short-term credit cont-ibutedto the relative increase, though evidence from the 1970s alone is insufficientto distinguish the importance of each effect separately. The section commentson how developments over the course of the 1970s reflect upon the debate overthe ways in which 'economic development' should be expected to change ruralwage labor markets.

The quantitative significance of short-term interest rate effects on thestructure of rural labor markets may be established through examination ofdevelopments in the 1980s, as is discussed in Section VI. Dramatic increasesin Interest rates on rural credit, such as occwred during this period, wouldbe predicted to reduce the relative importance of pemanent employment in theZona da Mata. Many other changes were taking place during the early- andmid-1980s, but all of them would be predicted to induce increases in thepermanent employment share. Thus the interest rate effect must have beenstrong enough to counteract those effects and induce the observed decline.lhis argument is followed by the conclusion in Section VII.

2

II. Changes In Permanent said Tenporary Employment, Zona da Mata, 160.-1989

C-enmus EiAdence ga Pemanent anid Teminorari E£mxmlnn1= 1936Q0 Column(a) of Table 1 presents the numbers of permanent worke'% reported in the 1960,1970, and 1980 Agricultural Censuses for the three microregions of the Zona daMats of Pernambuco." The numbers show an absolute decline in permanentemployment in the 1960s, and an increase in the 1970s (even when two likelyerrors in the published data are corrected, as noted in the table).

The absolute decline In permanent employment during the 1960s may havebeen even greater than indicated in Table 1. Agitation for land reform around1960 may have made employers reluctant to label their workers as "permanent,"since workers who could prove they had been on the land for a number of yearswere more likely to achieve success in their calls for land expropriation andredistribution. By 1970 fears of sweeping land reform had subsided, and mostpermanent workers were registered with the Ministry of Labor (discussed inmore detail below), so there woulJ have been much less reason to underreportpermanent employment.

Census reports on temporary employment, shown in column (b) of Table 1,reflect an even greater decline in temporary employment than In permanentemployment between 1960 and 1970, and imply an increase in the permanentemployment share during that period (see column (c)). These figures arealmost certainly misleading, however, owing to a serious undercounting oftemporary workers in 1970. The Census questionaire asked farmers to reportnumbers of temporary workers they hired directly, but not those hired throughIntermediaries. Though the number of workers hired through intermediaries waslikely small in 1960, it had become significant by 1970 as a result of rurallabor legislation introduced during the decade (discussed ir. Section IV) thatmade agricultural employers liable for providing workers with a number ofcostly benefits. Farmers could avoid some of these costs by hiring laborthrough intermediaries, whose treatment in the legislation was sufficientlyambiguous as to allow them to avoid paying most newly mandated benefits. Eventhough the use of intermediaries was drastically curtailed after 1979 - oneconsequence of broad-based strikes among agricultural workers beginning inthat year - the 1980 Demographic Census reports that 16 percent of temporaYagricultural workers in the state of Pernambuco worked with intermediaries.Tle share must have been significantly higher in 1970.

Calculation of labor-to-land ratios, as reported in column (e) ofTable 1, provides evidence of the undercounting in 1970 and suggests how rough

2 A measure of permanent employment in Table 1 includes the Census category'other employees' as well as the category 'permanent employees," sinceenumerators were instructed to include permanent workers called moradores inthe "other" category. (They seem to have done so only inconsistently.) Themeasure also Includes workers called "h" but these numbers areinsignificant in the Zona da Mata.

3 This figure refers to the state as a whole and not just the sugarcaneregion; but the sugarcane sector is the largest agricultural employer of wagehbor.

3

"corrections" for the undercounting may be made. he 1970 ratios of employeesto total cultivated land, which are sharply lower than the 1960 ratios, arenot very credible, because the 1960s were years of little technical change,and because the ratios return to higher levels in 1980. Supposing thelabor-to-land ratio in 1970 was the mean of the 1960 and 1980 levels,"corected" total employment may be estimated by multiplying this ratio by thearea under cultivation. "Correctede temporary employment (column (g)) maythen be estimated by subtracting reported permanent employment from the newtotal. Permanent employment shnaes calculated from the corrected figures(column (h)) show a decline between 1960 and 1970. If 1980 temporaryemployment figures were to be adjusted upward to account for the undercountingof workers hired through intermediaries, the corrected 1970 temporaryemployment figures would be even higher, and the decline In the permanentemployment share during the 1960s even greater.

Table 1 reflects several other facts that are often obscured Indiscussion of Brazilian rural labor market transformation over the last threedecades. First, temporary employmewa .,as lready substantial in 1960.Second, the "expvalsion" of permanent wnrkers during the 1960s was far fromcomplete; the vciume of permanent employment declined by 124 percent, butnearly 40 percent oi harvest season labor needs continued to be met byyear-round employees. Finally, though the volume of temporary employmentcontinued to rise during the 1970s, the volume of permanent employment roseeven faster, more than reversing the relative decline of the previous decade.

SamDile Survey Evidence go Permanent ad Temorary E£mIlgmeat, 197289m.Total employment continued to rise during the early- and mid-1980s, butpermanent employment grew so slightly thst its share in total employmentdeclined, as evidenced by the figures In Table 2. The table presentsestimates of the ratios of permanent to total peak season employment on farmsof at least 20 hectares within 12 municipalities located throughout the Zonada Mata of Pernambuco in the agricultural years 1978-79 and 1988-89.6 Thenumbers are derived from a sample survey (containing a brief retrospectivesection) conducted by the author during the months of June through August,1989. The sample and survey design. and the calculation of weights forconstructing population estimates, are discussed in the Appendix. Estimatesof the standard deviation of population statistics' sampling distributi ..s,also discussed in the Appendix, are on the order of three percentage pointsfor most ratios calculated from the entire sample.

Whether comparing the permanent employment share from the 1980 Census tothe 1988-89 estimate of the permanent employment share among aU employerswithin the 12 sample municipalities (see the first column of Table 2), orcomparing the 1978-79 and 1988-89 estimates for the subpopulation of sugarcaneproducers that completed the retrospective sections of the questionaires (see

4 Estimates from the sample survey discussed in this section suggest thattotal employment grew by about 17 percent over the ten-year period, whlepermanent employment grew by about 3 percent. Given the nature of thecalculations, the estimates of growth In volume over the period are lessprecise than the estimates of (changes In) permanent employmentshares.

s Farms of less than 20 hectares were excluded, because in this region mostof these small farms operate entirely with family labor and thus do notcontribute to demand for wage labor.

4

the third column of Table 2), the permanent employment share fell from 65poct to about 56 percet. This roprments a 26 percent inrea in theshre of Workers disemployed from agriculture at the end of each harvest. Forthe six municipalities Ln the Southern Subregion of the Zona da Mata, thepemnt employment share began 9ligttly highor and ended slightly lower thanwas th case for the group as a vhole.

A number of caveats must be placed on the use of this evidence, but noneof the potential problems Is great enough to 'nvalidate the inference of arelatlv decline in permanent employment over the ten year period. Thecollection of the 1978-79 data Involved recall; but there Is reason to believethat recall weas fairly accurate. Some large employers had records to whichthey could refer, while many smaller employers (or their admalnstrators) wereapparently so closely Involved with hiring decisions that they had littledifficulty remembering. The calculation of weights for constructing 1978-79population estlmates required employing some ad hoc assumptions about acreageacquired or disposed of by sampled farmers over the ten year period; but againthe potential for misleading inferences seems small, because the populationestimates were robust to changes In these assumptions.

Rewlts for the three microregions repreented by the other sixmunicipalities are not presented separately, since it is less tenable to arguethat the selected municipalities are represeatative of thei respectivemncoein.

S

m. Framework for Analyds

;efore turning to descriptlon and analysis of the forces that might haveinduced the changes in employment structure ':entlfled In Section U, It Isuseful to develop a comprehensive model of permanent and temporary employmentdetermination In the Zona da Mata. Such an exercise both clarifies thelogical links between prices, policies, and the permanient employment share,and allows a cmnplete Ust of candidate explanations for chage in thepermanent employment share to be created. To be complete, the model of supplyand demand for permanent and temporary wage labor should make explicit therationales for the existence of the permanent and temporary employmentarrangements observeA 'i the region, while at the same time Incorporating acareful description' .ie technological possibillties constrainig farmes'production and lab.- demand decisions. This section desoribes the natwu ofpermanent employment relationships at the beginning of the paiod of interest,discusses why such relationships existed and why they coexisted with temporarycontracts, examines in more detail the do.terminants of permanent and temporarylabor demands and supplies, and summarize- the implications of this frameworkfor explaining changes In employment structure.

Tne Nature oft innU P e tracts in 1960 The traditional permanentlabor arrangement in the Zona da Mata was called moada and may be describedby drawing on a number of historical and anthropological studies of rurallabor markets in the region, and on the results of a small survey ofagricultural workers carried out by the Fundav&o Joaquim Nabuco in 1961(Maciel). The survey included eight municipalities, and Involved applyingquestionalres to households of workers on a geographic-4ly dispersed set offarms within each municipality.

Morada was a "permanent" labor arrangement in the sense that It tiedemployer and employee during the Inter-harvest season as well as during thefour- to six-month harvest season; but It allowed for considerable mobility atthe end of each agricultural year. In fact, the 1961 sample survey data ledresearchers to comment on the "nomadisme of workers in the Zona da Mata(Maciel, p.48), and the data show that of workers who had been on the farm atleast six months (and could thus be considered permanent), 10 percent had beenon the farm less than one year, and 49 percent had been on the farm for less

7 Maciel does not indicate the season of the year during which the survey wasconducted. He also provides no detail on how farms were chosen, and howworkers from a givetr farm were sampled, except to say that researchersendec-.cred to choose a "representative" sample. Since a small number ofrespondents report occupying owned or rented (rathew tban ceded) housing, thesample seems to have itcluded nonresident as well as resident workers.Whether or no; workers hired through intermediaries were Included is unclear,though a reference at the end of the report suggests that the use ofIntermediaries did arise within the scope of their interviews. Since 82percent of the workers interviewed had been on the farm for at least sixmonths, and thus were clearly "permanent" In the smen that they were nothired only for the harvest, while Census reports indicate fewer than half ofthe workers were permanent In 1960, temporary workers appear poorlyrepresented. There Is, however, little reason to doubt the validity of thesample's description of permanent labor relationships.

6

than five years. Nearly half (48 percent) of all workers had been born inmnicipalities other than the one In which they were working at the time ofthe survey. Of those born In other municipalitles, 66 percent were born inother parts of Pernambuco's sugarcane zone; so the numbers reflect significantmobility within the Zona da Mata.

In the light of workers mobility, anthropologists' observations thatboth worker and employers considered moradores to be "subject" (suileito) totheir employers is especially striking. Workers considered themselves "free"(liberto) only after moving to town and taking up work as b6ias-fria, (seeGarcia, 1988). Their subjection, which they were free to end by quit.:'g,seemed to involve responding to thelr employers' calls on a 24-hour basis,votin for their employers' candidates, not absenting themselves from workwithout good reason,and fulfilling other obligations for which they were notdirectly remunerated. While most agricultural tasks were performed by bothmoradores and temporary workers, the labor services associated with subjectionwere required only of the moradores.

Moradores' remuneration also differed from temporary workers' in severalrespects. First, though by 1960 both types of workers received cash piecerate wages for work In the employers' sugarcane, permanent workers may haverecelved lower rates or been assigned more difficult tasks for the samerates. Second, moradores also received credit (in a store on the farm calledthe barracao) as well as various sorts of "in-kind" payments. They receivedhousing and firewood on the employers' farm. With the exception of workers inone unusual municipality, 93 percent of the workers surveyed by the FundaraoJoaquim Nabuco in 1961 lived in ceded housing. Permanent workers alsobenefited from the employers' assistance in medical emergencies; and employersoften served as godfathers for the workers' childreni, presumably bestowing onthem a valuable social connection.

The usual characterization of morada also associates it with the cessionof small plots of land (called sitios) for the workers' use in cultivatingfood crops; but evidence suggests that by 1961 this stereotype was no longeraccurate. In earlier decades workers had devoted much of their time tocultivating these plots, and the in-kind payments derived from them hadconstituted most or all of their remuneration for work in the employers'sugarcane fields (M.C. Andrade, 1986a, p. 17). By 1961, even though workers onmany farms still had access to land for planting subsistence crops, few ofthem actually took advantage of the plots (Maciel, p. 50). The number of daysper week they were required to devote to the employers' sugarcane had risensubstntially (M.C. Andrade, 1986b; p. 104) and the ceded land was of such lowquality as to make its cultivation unattractive, anyway. Food grown by theworkers themselves constituted only a very small percentage of food Items theyconsumed (Maciel, p. 36). Additional evidenct. Pom a somewhat later period

Evidence on permanent and temporary wage comparisons in 1960 are lacking.but evidence from earlier periods shows permanent wages to be lower, whileevidence from later periods shows permanent task assignments for the same wagerate to be harder. As mentioned below, in the 1940s and 1950s workers wereceded land for the cultivation of subsistence crops and required to workseveral days per week for no pay at all in the employers' sugarcane. By 1960the number of days workers were required to work In the sugarcane had risen tofive or six, and workers had also begun to receive wages for this work.Evidence on differentiation In tasks assigned to permanent and temporaryworkers In later periods Is discussed below.

7

corroborates the argument that the practice of ceding land for subsistenceproduction has been of little importance In recent decades. A 1985 SWvey(Rufino de Araujo and Rutfno Dabat) of 7000 urban-based agricultural workewsfound that 75 percent had previously been moradores. and 63 percent of themclaimed never to have had access to land.

Economic Rationales for te Existence of Su,Mh Qrats. During theinter-harvest season farmers must hire some workers to plant sugarcane on landnewly prepared for cultivation, to replant some portion of the area alreadyunder sugarcane, to weed the growing cane, and to perform various maintainanceactivities. Employers could simply fill these labor requirements by hiringtemporary labor in spot markets, but they almost always choose instead toestablish permanent contracts with these workers, linkng slack and peakseason labor service and pay agreenents. Employers find the offer ofpermanent contracts to slack season workers attractive, because by so doingthey reduce labor costs in several ways.

First, by securing in advance the harvest season labor of workers hiredto perform slack season tasks, employers mal avoid the high costs of having torecruit this labor during the harvest season. The need to recruit laborduri-g the harvest season is costly both because the direct costs of findingworkers and convincing them to work on a particular farm are significant, andbecause failure to find the right number of workers at the right time inducescostly delays in the completion of agricultural tasks. The existence by 1961of labor market Intermediaries, who seldom provided transportation (Maciel, p.49; Galiza de Oliveira, p. 46), suggests direct recruitment costs were of someImportance. Intermediaries made their services attractive to employers andmanaged to earn higher Incomes than temporary workers, apparently because theadvantage they derived from living in the temporary workers' neighborhoods andhaving been temporary workers themselves reduced the nontrivial direct costsof recruitment.

The indirect costs of recruiting labor during the harvest season,associated with the "many cases of labor shortages In the Zona da Mate"already reported in 1961 (Maciel, p. 50). were especially great in thecultivation of sugarcane. Delays between preliminary burning and cutting, andbetween cutting and transport to the sugarmill, as well as delays requlringthe cutting season to extend too late in the year, all reduce the weight andsucrose content of the sugarcane. About half of the sugarcane In the regionis cultivated under the direct administration of sugarmills, who take intoaccount the effect of weight and sucrose content losses on industrialproductivity. Farmers supplying cane to the mills have become increasinglyconcerned with these losses. While they have long been paid according to thetonnage of cane they deliver, since 1983 the price they receive has alsodepended on sucrose content.

Hiring slack season workers under permanent contracts may also allowemployers to pay harvest season wages that on average are lower than spotmarket wages. Workers without other means for smoothing consumptin acrossseasons and states of nature would be willing to trade off lower-than-averageharvest season wages (net of interest payments) In exchange for a combinationof slack season wages and access to the barracao that impUcitly or explictlyprovide them with consumption credit and wage hnuance Employers who have

9 Bardhan (1979) introduces recruitment costs Into a simple model of demandfor permanent and temporary agricultural labor.

8

access to credit and are less averse to risk than the workers will find suchtrades attractive, provided they have sufficient reason to believe workerswhen they promise to work for below-market wages during the harvest season.W

Employers may reduce effective permanent labor costs even further bypartially paying workers with goods and services that may be produced by theemployer at low cost, but that workers could at best obtain elsewhere only ata higher cost. Provision of yew-round housing, medical assistance (or atleast transportation) in case of emergency, and social affiliations apparentlyserved this purpose.

As mentioned above, in the 1940s and 1950s employers also reduced laborcosts by allowing workers to cultivate subsistence crops on small plots ofland. This practice allowed them to reduce labor costs, while maintainingworkers at the same level of consumption associated with the going cash wage,since they could allocate land they considered sub-marginal for sugarcanecultivation to this purpose (Heath, p. 269), and since transportation andtransactions costs associated with the payment of cash wages and the purchaseof food could be avoided when workers produced and consumed the food in thesame location. Since by the 1960s this practice had already lost importance,it appears that the opportunity cost of devoting land to this use had risenenough, and transactions costs in food markets had fallen enough, thatemployers could no longer cut costs by this method. Thus the ability to makesuch in-kind payments no longer provided a rationale for the existence ofpermanent contracts.

In principle employers could reduce direct labor costs the most byproviding permanent workers with a basket of wages, consumption credit,insurance, medical assistance, housing and other in-kind payments that wouldleave them just as well off as they would have been as temporary workers.Employers may have chosen not to push permanent workers' wellbeing all the waydown to that level, however, because by incurring somewhat greater costs theycould also secure the valuable labor services associated with 'subjection."Their only way to induce subjection may have been to provide permanent workerswith contracts that left them better off than they would have been asanonymous temporary workers, combined with Iihe threat of dismissal upondetection of shirking in these responsibilities. Employers could not write

10 Bardhan (1983) develops a theoretical model in which permanent contractsprovide workers with Implicit conumption credit and insurance.U Such in-kind payment schemes made most sense in the case of permanentworkers for two reasons. First, the production of food requires laborprimarily during the sugarcane inter-harvest season, so workers involved infood production would be required on the farm year round. Second, theobservation that food for in-kind payments was always cultivated under ascheme giving workers the claim to all output on a given subsistence plotsuggests that food production was only profitable If incentive schemes ratherthan costly direct supervision could be used to induce conscientious labor onthe dispersed and idiosyncratic plots. Such incentives could only be designedif workers were associated with the plot over most of the agricultural year.

12 In Eswaran and Kotwal's rural labor market application of this efficiencywage notion, workers' effort in the performance of slack season planting tasksqannot be monitored directly but can be inferred at the end of the year.Workers hired in the anonymous spot market during the planting season wouldshirk. Workers with attraetive, annual contracts would choose not to shirk If

9

straightforward fee-for-service contracts for the labor services associatedwith "subjection," because they could not monitor directly and immediatelywhether workers were fulfilling such obligations. For example, except in timeof crisis (when it Is too late), it is impossible to observe whether workersare willing to aid in case of crisis; and It is not always possible to observediectly whether workers vote for preferred political candidates and whetherthey otherwise behave in desired ways. The threat of dismissal upon detectionof shirking in these responsibilities could be made a real threat, however.because eventually workers' compliance could be inferred. When crisisstrikes, for example, the employer may infer whether workers have been willingand available to help; and in small communities the way workers vote andotherwise behave eventually comes to light as well. Thus employers could usethe threat of dismissal from privaleged employment situations to induce thesubjection of workers.

Proving directly that permanent workers were better off under permanentcontracts than they wou'd have been as temporary laborers is nearlyimpossible. Even if good wage data were available, the comparison of welfareunder the two contracts would be complicated by the need to value theconsumption credit, earnings insurance, housing, in-kind payments, emergencymedical assistance and other "gifts" they also received from their employers.Published case studies and casual conversations with temporary workers do,however, suggest that a pool of temporary workers who would prefer permanentcontracts did exist; and permanent workers could have feared failing back intothis pool. Further, the very subjection of the permanent workers, who foundsubjection distasteful and who were free to find other employment, providesindirect evidence that permanent contracts provided them with a premium inwellbeing that they feared losing. Reasonably high mobility suggests thatneither the fear of obtaining a bad reputation nor the expense of moving couldexplain workers' compliance with the rules of subjection. Some workersprobably feared physical punishment rather than mere dismissal; but physicalpunishment has become rare In recent decades (M.C. Andrade, 1986b, p.107).Thus it seems many workers simply preferred not to fall back into theanonymous labor market, implying that their permanent positions wererelatively attractive. Finally, the disappearance of subjection in the wakeof events (discussed below) that increased the cost to employers of disaissingworkers and that reduced the credibility of their threats of dismissal,suggests that this rationale for the use of permanent contracts was relevantin the early 1960s and before.

Airicultural Production a Labor Demand. Employers' ability to reduceharvest season labor costs (and increase net returns associated withyear-round subjection) by hiring slack season workers under permanentcontracts suggests that they will hire slack season labor beyond the point at

the disutility of working hard today is moe than compensated by the guaranteeof continued attractive contracts in future years. Taken at face value themodel has little relevance to the Zona da Mata, where workers are paid piecerates and their efforts are monitored by at least two tiers of supervisors,leaving little scope for shirking. Even if some aspect of the work escapessupervisor's attention, harvest results allow no inference about it, bothbecause the vagaries of weather and pests mask the effect of workers' effortand because no records are kept to allow the linking of output on a given plotto the worker responsible for planting and weeding it. The labor servicesassociated with subj'nction, however, may be characterized as directlyunobservable but inferrable with a lag.

10

which Its marginal product equals its wage. Whether the cost savingsstimulate farmers to offer year-round employment to many or few of theirworkers, however, depends on technological substitution possibilities and onthe full cflguratlon of prices and fixed factors conditioning productiondecisions.

Farmers in this region have several technical options for varying theratio of slack to peak season employment, while maintaining the volume ofoutput constant. First, farmers may vary the relative importance of"extensive" and "Intensive" cultivation practices. Extensive practicesinvolve minimal replanting and weeding, and consequent low productivity peracre, while more intensive practlces involve replanting a greater proportionof the cane each year and weeding the standing cane several times, increasingper-acre slack season labor requirements. Though more intensive cultivationincreases output, it also renders cane easier to cut, and seems to increaseharvest labor requirements by less than slack season requirements. In thelast ten to fifteen years farmers have also begun to make use of other meansfor varying seasonal labor requirements. Semi-mechanization of the harvest -In which mechanical harvesters pick up loose, manually cut cane and load itInto trucks - reduces harvest labor demand by making the bundling of caneunnecessary; so it allows increases in the permanent employment share andreductions In total peak season labor demand. Herbicide use, on the otherhand. reduces slack season labor requirements and allows reductions in thepermanent employment share.

The ratio of slack to peak season labor requirements is also likely torise as output expands over time on individual farms, and to be greater onlarger farms at any point in time. Output expansion on an individual farmrequires extending either intensive or extensive practices on to land of lowerquality. On steeper, poorer quality land both slack and peak season tasks aremore dlfficult to complete. The difficulty of slack season tasks seems torise by more than the difficulty of cutting the cane, while the volume ofoutPut to be harvested also falls, making It likely that slack season per-acrelabor requirements rise tv more than peak season requirements. Larger farmsappear to be more efficient in the use of labor, perhaps because of economiesof scale achieveable through the division of labor. The scale economiesappear strengest in harvest season activities, so that the ratio of slack topeak season employment tends to rise with the scale of production.

If farmers may be thought of as making their production and employmentdecisions so as to maximize end-of-year profits, perhaps adjusted for thevalue they Impute to noneconomic dimensions of subjection, then a number ofcauses for change in the mix between permanent and temporary wage labor demandmay be identified. Farmers determine production, and slack and peak seasonlabor inputs, by selecting how much of their land to cultivate, and which ofthe above-mentioned cultivation practices to employ on fields of varyingquality. They make these choices subject to the constraints Imposed bytechnology, and by the need to finance slack season labor and herbicidepaYments. As mentioned above, they may also choose permanent employee wagesand benefits in arder to guarantee that permanent employees are sufficientlywell off relative to temporary workers that they would rather behave assubjects than risk dismissal. Facing these objectives and constraints,

T3 Me descrion of technology presented In the next several paragraphs Isbased on preliminary analysis of cross section data and conversations withproduces. Further research Is merited.

farmers would increase the ratio of slack to peak season labor, atd thus theshare of permanent contract offers In total peak seasm labor demand, whenIncreased output prices or reduced input costs stimulate expansion onto lowerquality land. The permanent employment share should also rise as Increases inthe stock of harvest machinery reduce harvest season labor requirements, asincrases In the effective price of chemical herbicides discourage their use,as permanent wages fall relative to temporary wages, as rising recruitmentcosts make permanent labor more attractive relative to temporary labor, and asthe scale of operations rises. It should fall as the costs of providing anyin-kind payments to permanent workers rises. Finally, an incrase In theinterest rate at which the slack season wage (and herbicide) bill Is financedwill increase the finance charge-inclusive cost of slack season labor relativeto the cost of peak season If4bor, and will induce a reduction in the permanentemployment share demanded.

La_bor SuiDml jd "General Eauillbrium CQmvaraive 1at1ics.a Equilibriumlevels of permanent and temporary employment depend not only on farmers'demand for the two categories of labor, but also on workers' willingness tosupply labor as permanent or temporary employees. Laborers compare, on theone hand, working all year as permanent sugarcane workers, perhaps beingrequired to behave in the manner of traditional subjection, while receivingthe wages and nonwage benefits of the permanent employment arrangement, and,on the other hand, working in the sugarcane sector primarily during theharvest season, while receiving temporary wages. Since workers differ Inpreferences, assets and family situations, they will differ in theirwillingness to work harder, be subject and/or receive lower wages in exchangefor the cosumption credit and insurance afforded them by permanentcontracts. The workers who associate greater utility with the permanentarrangement than with the temporary one seek permanent employment.

If employers create incentives for subjection by maintaining permanentwages above market-clearing levels, then some workers seeking permanentemployment will be disappointed. If instead markets are allowed to clear,wages and benefits on the two contracts will adjust so that all those workersdesiring permanent employment will find It and the marginal permanent employeewill be indifferent between permanent and temporary employment. Either way,equilibrium is likely to be characterized by some combination of lower wages,lower nonwage benefits and more onerous obligations for permanent thantemporary workers. The ability to continue working during the slack seasonmeans both that if permanent workers' wage rates were the same as those fortemporary workers their annual incomes would be higher, and that the patternof their income receipts is smoothed over the year. Thus even thoughreceiving lower wage rates, permanent workers may be maintained at utilitylevels equal to or higher than temporary workers.

14 Econometric analysis of 1988-89 cro-section data (Anderson, 1990)provides evidence to substantiate the claims that the permanent employmentshare rises with scale of operation and with the magnitude of transactionscosts associated with hiring temporary labor.is Some sorting of workers into the two types of employment takes place alongeasily observable lines: the young and unmarried (Sigaud, p. S5) and theseasonal In-migrants with small farms in other regions (I.C. Andrade, 1986b,p.108-109) typicaUy preferred temporary contracts, while workers with growingfamilies tended to prefer the morada arrangement.

12

Th same characteristic of workers' proferences that causes them topefer smoothing consumption across the seasons - the diminishing marginaluty of csumption within seasns - also Implies that as labor maketst4bten and wae levels rise, the cost of permanent labor will rise less thanthe cost of tempoa labor. If permanent wages were to rise In the sameproporti as the higher temporary wages, workers' utility from permanentcontas would rise by more than the increase It utility from temporaryeontracts. Thus if employers are setting permanent wages to guaranteeworkers' Incentive to be subject, they could allow permanent wages to risemore slowly than temporary wages without creating incentive for permanentworkes to shirk (as in Eswaran and Kotwal). If instead the differentialbetween permanent and temporary wages is determined by the clearing of labormarkets, proportionate increases In pe-manent and temporary wages would leadto an Increase in the share of workers willing to take permanent contracts,and the permaent wage would be driven down. Thus, either way, permanentcotracts become relatively attractive to employers as labor markets tighten,and the permanent employment share in total employment is expected to rise.

As labor markets tighten, employers find permanent employmentihreasigy attractive relative to temporary employment for a second reason.Harvest season recruitment costs rise as direct search costs and theproabilities of costly labor shortages rise (as in Bardhan, 1979).

This brief discussion of labor supply and general labor marketeqilibrium suggests that the partial equilibrium comparative static

predictions based on analysis of farmers' agricultural production and labordemand decisions should be amended in several ways. Adjustments toward newlabor market equilibrium will magnify the increase in the permanent employmentshare associated with Increased output prices, reduced input prices, and theasciated expansion of production and employment. Likewise the reduction In

the permanent employment share associated with interest rate increases wouldbe magnified if tighter financial conditions induce sectoral contraction.Demand-side Increases in the permanent employment share associated withincreases in the stock of harvest machinery, or increases in operationalscle, would be partially offset if reduced total harvest season labor demandlead to a slackening of labor markets.

changes in equilibrium permanent and temporary employment may also bedriven by supply side developments. Reductions in the total harvest seasonlabor supply, associated with the permanent out-migration of labor or withreductions in labor force participation, would contribute to a tightening oflabor markets, to rising wage levels and to increases in the relativeattractiven of hiring permanent labor In agriculture. RelativeIm veMU in the attractiveness to workers of temporary employment,Independnt of changes in farmes' wage and benefits offers, would also induceshifts in the equilibrium pemanent employment share. For example, Improvednoagriultural wvork opportunities in the slack season would reduce the shareof workers seeking permanent agricultural employment. It seems that thispotential sorce of change may be dismissed for the Zona da Mata, since aslate as the 1980s very little rnonagricultural employment had developed. Manyof the towns in which the workers now live are little more than rows ofagricultural workers' houses, with a bank, a union office, a church andperhaps a few small stores in the center; and when 7000 urban-basedagricultural workers were asked (Rufino do Araujo and Rufino Dabat) what theydid during the slack seasons, 17 percent responded 'nothing,- 25 percentdeclared al' activities (crops, woodgathering, hunting and fishing), and36 pwrent reoted -odd Jobs,' while only 11 percent declared constructionand 1 perent declared -other urban activities." In the mid-1960s - before

13

the Brazilian growth "miracle and before the recent expansion of the sugareconomy - the pull effect of nonagricultural slack season employment must havebeen even weaker.

Reductions in the equilibrium permanent employment share could alsoresult from changes In urban amenities, public medical asistance, and perhapsthe civil rights of workers, that reduce the value workers place on housing,medical help and patronage ties provided by employwrs under permanentcontracts. Such changes should drive up the cost of the permanent wage andbenefits package relative to temporary wages and reduce the equilibriumpermanent employment share. A final and more fundamental change in employers'decision-making calculus is discussed in the -ext section.

IV. The Rural Labor Statute of 1963 and the Decline of Permanent Employment

The Rural Labor Statute. On paper, the Rural Labor Statute of 1963guaranteed minimum wages, paid vacation, eight-hour work days, paid days off,Christmas bonuses and indemnities for "dismissal without just cause" toagricultural workers. Many social scientists naturally suspected a linkbetween this legislation and t)le shift from permanent to temporary contractsexperienced during the 1960s, but little detailed analysis of the policy'seffect has been provided. References to the Statute seem to allege that newlylegislated agricultural minimum wages. paid days off and Christmas bonusesincreased the direct current cost of permanent workers, for whom theprovisions were enforceable, and that this increase in the relative cost ofpermanent labor induced a shift away from permanent employment. This sectionargues that this simple story must be incorrect, but that the legislationnonetheless led to fundamental changes in the nature of permanent employmentrelationships. and is the principal cause of the decline in permanentemployment during the 1960s. Shortly after the introduction of thelegislation came the 1964 military coup and the restriction of labor unionactivities, which caused rural minimum wage legislation to lose force. TheStatute's provision for the payment of indemnities to workers fired withoutJust cause. however, remained enforceable and costly even after 1964, and infact led to a fundamental change in the permanent employment relationship.

Several observations about the history of rural labor legislation suggestthat the story linking minimum wages to the expulsion of permanent workers istoo simple. First, minimum wages for agricultural workers were not new underthe Rural Labor Statute. Minimum wages, paid vacations and eight-hour workdays dated back to the Consolidation of Labor Laws of 1943. Paid days offdated to 1949 and Christmas bonuses dated to 1962 (Sampaio, p.5-6). Second.policymakers seemed to assume that the Statute would be Ignored lke theprevious attempts to impose minimum wages in agriculture (Callado. p. 4; Perez

1 A number of authors (Federaqlo dos Trabalhadores na Agricultura do Estadodo Paranf, p. 78; Graziano da Siva and Garcia Gasques, p. 86; Sao PauloSecretaria de Economia e Planejamento, p. 371; Stolcke, p. 179-240) includethe Statute in lists of potential causes of the observed decline in permanentcontracts In the south of Brazil during the 1960s. Some (D'Ingqo e Mello;Gomes da Silva and Silva Rodrigues, p. 62-64; Gonzales and Bastos, p. 43-46)interpret the shift toward temporary contracts as the Inevitable consequenceof capitalist development, but at least acknowledge that the Statute may haveserved as a tool for bringing about the rise of an urban resev army.

14

do Rezende, p. 12); and in fact it was given little attention on its waythrough Congress (Prado Jlninor, p.1). Third, the law's great ambiguity (Caloprado Jbldor) allowed some jurists (e.g. Sampalo, p. 11) to interpret it asexaendIg to temporary agricultural workers minimum wage and other guaranteesalready extended to pormamet workers by the Consolidation of Labor Laws of1943. Only some (like Paeez de Rezende, p. 32-3) maintained that theStatute's minimum wages applied only to permanent workers.

These observations alone are an incomplete refutation of the argumentthat the new legislation increased the cost of permanent labor, because, as ispointed out by a number of authors (M.C. Andrade, Garcia, Sales, Sigaud), whatgives force to legislatlon Is neither novelty nor clarity, butan Institutional setting In which it can be made to count. And indeed, at themoment of the Statute's enactment the Institutional setting was morepropitious than it even had been for the enforcement of rural laborlepislatlon, especially in the Zona da Mata of Pernambuco. From 1960 through1963 the Communists and the Catholics vied for leadership in the organizationof rural leagues and unions, while the state government of Miguel Arraes andthe federal government of Jo.io Goulart encouraged and officially recognizedthe unions. By preventing police intervention and by hosting talks betweenworkers, sugarcane planters and sugarmill owners, Arraes helped bring aboutthe historic Accord of 1963, which turned Statute provisions into real gainsfor workers. Through the Accord, workers and employers agreed on a "RuralTable," defhing the magnitudes of tasks or outputs that constitute one day'swork, thus allowing meaningful translation of daily minimum wages into thepiece rates of interest to sugarcane laborers. That the Statute together withthe Rural Table initially increased the wages of unionized workers is borneout by the observations that increased purchasing power was having a"multiplier effectW on the commerce of small towns in early 1964 (PrIce, p. 7;K.C. Andrade, 1986b, p. 198) and that consumption of consumer goods (such asradios, watches, gold teeth, bicycles and glasses) Jumped (Sales, p.79; Melo,p. 244).

Within months, however, the military coup severely restricted the abilityof labor unions and social activists to demonstrate for improved complianceand expanded rights. Arraes fled into exile, legal strikes were made nearlyimpossible, the Ministry of Labor "intervened in many local rural laborunions and sn their national federation, and labor unions were confined to apurely "assistentla" role. Thus just how the 1963 minimum wage legislationcould have led to the decline in permanent employment observed through the1960s, and possibly into the early 1970s, Is not immediately obvious.

Indeed the efficacy of rural minmum wage legislation was quickly eroded.After 1964 the Rural Table lost relevance until It was resurrected in 1979following the first major post-1964 strike (Sigaud; p. 70; M.C. Andrade,1986b, p. 198). By manipulation of the size and difficulty of tasks, evenapparent compliance with the minmum wage could be coupled with permanentwages low both absolutely and relative to temporary wages. Temporary workerswere given smaer aeas to cut for the same daily wage, and in the easlestareas to cut (Sigaud, p. 72). Permanent workers cut in steeper or rockierareas, or where the cane had not been well weeded, was old or had not beenburnt prior to cutting

Two provlsions of the Rural Labor Statute, curiously absent from manyauthors' lists of Statute guarantees (e.g. M.C. Andrade, 1986b, p. 107; Sales,p. 76), differed from the minimum wage provisions, both in being novel foragricultural workes and In remaining effective after 1*4. They entitledworkers to Indemnities equal to one month's wage per year of service for

15

dismissal without Just cause and to stability after ten years of service. Aworker with stability could be dlsmissed only for a grave offence or for twicethe normal Indemnity.

Indemnity provisions remained effective, and costly to employers, evenafter workers' collective action became impossible, because they gave rightsto individual workers (at least those with some tenure) that could not be bidaway by other union or nonunion workers. Workers who had been dismissed couldand did either make claims for Indemnities in the labor court or reach accordsout of court with their old employers. "Just cause" proved very difficult toestablish, the legal proce- took time, and litigation almost always producedpayments to the workers.

Various observations by social scientists indicate that indemnities andaccords were in fact being paid: Sigaud (p. 114) describes workers puttingthese payments to use in covering the costs of installation in town. Garcia(1975; p. 3) describes how in the municipality he studied - a transitionregion with more small agriculture and livestock than most of the sugarcanezone - some employers gave workers small pieces of land as indemnity. Perezde Rezende, writing in 1971, reports that despite Initial thoughts that theStatute would come to nothing, the last several years had brought asignificant increase in the number of workers taking employers to court forpayment of paid vacation, Christmas bonuses and differences between legalminimum and actual wages, as well as for indemnities, proving that the Statutewas "not a fiction (p.12)."

The impact of Indemnity provisions spread over time as workers gainedInformation about their rights and obtained access to legal assistance fortaking claims to court. Even though rural labor unions had no scope fororganizing strikes or improving regional pay scales, they were able to provideInformation and legal assistance, and their numbers were growing. Themilitary government Itself engaged in setting up rural labor unions, with theprlmary mandate of providing medical assistance. The number of unions in theZona da Mata of Pernambuco, which had risen from 6 at the end of 1J9 61 to 31 atthe end of 1963, rose to 52 by 1973 (Pandolfi and Medeiros, p. 226). Manyworkers made their first contact with the unions out of a need for medicalhelp, and were there informed of their rights and assisted in legallyregularizing their employment situation (Sigaud; p. 229).

Even though temporary workers were included in at least some of the ruralLabor Statute's provisions, the unions made little effort to reach them intheir post-1964 information campaigns. Field research as late as themld-1970s indicates that the unions made no effort to draw the b6las-friasinto union activities (Pandolfi and Medeiros, p. 261). Temporary workers'numbers were still small; and without the ability to strike, unions were

17 Why the courts ruled so consistently in favor of workers is a deeperquestion not tackled in this paper.

is Since by law there can be no more than one agricultural labcr nion in agiven municipality, this increase in numbers represents a significantgeographical spread.19 increased provision of services by the unions nity also have inhbitedemployers' ability to reduce labor costs through offering similar in-kindpayments, and may bave contributed in a small way to the declnlngattractiveness to employers of offering permanent employment.

16

restrieted to activities that would stand no greater chance of success iftemporary workers were Included.

Many temporary workers would have been unlnter - d In suing for theirrights anyway, since they were either seasonal migrants .vho wanted to completetheir harvest work as soon as possible in order to return to their small farmsin other regions of the state, or young, single workers who preferredday-to-da freedom to work where wages and cutting conditions were the best.Uving in town, the temporary workers also had greater access to municipal andstate health facilities, and thus had less need to seek out the labor union'sprimary service: medical assistance (Pandolfi and Medeiros, p. 259-260).

Despite temporary workers' disassociation from the claims for payment ofnewly-legislated "rights," employers protected themselves agains possiblefuture liabilities by contracting temporary labor through intermediaries(gIE2wrgz), who hired and transported temporary workers (often In theemployers' vehicles) to weed or harvest the fields. nTe empreteiros shieldedemployers from social security liabilities, and were able to avoid theUlabillties themselves because their legal treatment in the Rural LaborStatute was ambiguous and because they were footloose.

Resulting Chanes in th Nature _O Pemanent Labor AMiniments.Contemporary permanent contracts in the Zona da Mata differ from morada (andfrom Ungering stereotypes about permanent employment) in a number of waysthat may be explained as consequences of this severance pay legislation.First, the fixity of permanent workers seems to have increased, reflecting thegreater costs both employers and employees associate with severing theemptoyment relationship. While in 1961 the Fundaoo Joaquim Nabuco surveyfound that 51 percent of workers who had been on the farm at least six monthshad been on the farm at least five years, In 1989 the estimated populationshare of permanent workers who had been on the farm at least five years was 58pwrct. If the 1989 -atio were calculated putting less weight on smallemployers, as was likely the case in the 1961 survey, the ratio would be evenhigher. The share of permanent workers who had been on the farm at least 10years was almost 30 percent in 1989. Perhaps more convincing than comparingthe results of these very different surveys is the clear contrast betweencontemporay farmers' comments about being "stuck" with permanent workers andthe comments from 1961 and earlier about the "nomadism" of moradores.

The legislation-induced increase in fixity was associated with a loss inemployers' ability to obtain lower-than-average harvest wages in exchange foroffers of Implicit consumption credit and insurance. Only new permamentworkers had inetive to continue working for low, pre-established harvestwages despite higher spot market wages. After they had built up a few yearsof tenure they begin to exercise their bargaining power. Since Just cause fordismissal was extremely difficult for employers to establish, workers hadgreat scope for bargaining their costly dismissal into higher effective wages.Sigaud (p. 226) describes how In the 1970s unions encouraged permanent workersto protest for effective plece rate wages matching those given to temporaryworkers on the same farm, by leaving their farms for a few days to work asb6las-frlas.

More fundamentally, the -subjectione that previously characterizedmradore' relationships with their employers also appears to have broken downon many farms. Not only does It appear more difficult to induce workers tomake themselves available for help with crises on a 24-hour basis, butabsbnteeism rates during normal hours have become quite high. Anthropologistsalso comment on how the legislation transformed the traditional "complex labor

17

relationships into the mere terms of employer and employee (Melo, p. 245)1 andon how employers' new legal obligations eroded employer.' ability to exerciseauthority along the lines of the old patemaltstic pattern (Mlo, p.ll'-112).Such a change in the nature of permanent employment could be explalned by theobservatlon that workers who knew that employers feared paying indemnitiescould not credibly be threatened with dismissal; and this loss of a crediblethreat led to the breakdown of the usubjectiona previously characteristic ofpermanent contracts.

Once it became impossible to construct contracts that provided Incentivefor workers to fulfill the obligations of subjection, and once permanentworkers came to perform only the same observable agricultural tasks thattemporary workers perform, It becane more feasible to write explicit laborcontracts (long required by law). Workers with explicit contracts registeredwith the Ministry of Labor now constitute at least 90 percent of permanentworkers (according to the 1989 survey), and most farmers date the registrationof permanent workers to the mid-1960s. Some farmers observed that as soon asworkers' implicit contracts were made explicit through registration with theMinistry of Labor, they stopped showing up regulrly for work, signalling animportant change in the employment relationship.

QOualtative Effects on the Volume gf Pe_manent Employment, As permanentlabor became less attractive for the reasons discussed above, the incipientreduction in permanent employment ought to have bid down new permanentwoircers remuneration, moderating the change in the equilibrium contract mix.Such wage reduction could not fully counteract the legislation's effect,however, because near-term wage reductions sufficient to return employers'expected costs of labor over the life of permanent contracts to pre-Statutelevels would have made new permanent contracts significantly less attractiveto workers. Though workers could expect higher earnings or Indemnity paymentsfive or ten years down the road, they had no access to credit markets to drawthose consumption gains forward; and cuts in already low near-term wages wouldhave had a great Impact on their wellbeing. Another reason wage reduction wasa faulty mechanism for compensating other cost increases, was that as actualwages fell further below legal minimum wages, the magnitude of possible futureindemnity awards (incorporating restitution for infractions of minimum wagelaw) increased. A greater divergence between permanent and spot market wageswould also have induced greater tendencies for permanent workers to moonlightas temporary workers on other farms rather than increase their weeklyproductivty on their own farm.. For all these reasons the legislation-inducedcost increases for permanent labor (and benefit reductions through theelimination of subjection) were not completely offset by permanent wageadjustments, and led to a strong shift ir the equilibrium level of permanentemployment.

The increased costs of permanent employment led to some immediatereductions in the number of permanent contracts, as recorded in 1964 by Price(p. 71). Presumably at least a few forsighted employers dismissed uninformedworkers without paying indemnities in order to avoid difficulties thatappeared inevitable. In other cases workers forced the issue by demandingback payments of guaranteed benefits; and perhaps some employers reachedaccords because they perceived that medium term cost saving compensated the

20 One small farmer who employs a few relatives also claimed that the workerschose not to be registered because they preferred the sense of mutualresponsibility associated with unwritten contracts.

18

Immedlate cost of Indemnity payments. Much change, however, was som6ewhat moregradual, both because the pressure of litigation only made Itself feltgradually as union membership spread, and because employers chose to reducelevels of permanent employment by attrition rather than by costly firin.Some employers attempted to "encourage" workers to quit by burning houses,reducing subsistence plots, failing to help In time of need, or making workingcondltions unpleasant (Sigaud, p. 57-73).

Though permanent employment declined, It Is worth noting that theimpression left by many studies of rural lacor market transformation In theZona da Mata, namely that all permanent workers but the skilled or e,ecializedwere expelled from the farms following the Imposition of the Rural LaborStatute (M.C. Andrade, 1985, p.199; Sigaud, p.127). is mistaken. In 1989farmers report that they consider only a small share (16 percent) of thepermanent workers to be "specialized" in particular agricultural tasks (suchas animal management, preparation of sugarcane for planting, and applicationof herbicides). This suggests that of the 39 percent of the labor force hiredunder permanent contracts at the end of the 1960s, many were unskilled.

At=ibutina Ouantitative Significance tg the UEfet g LeXislation oniPermanent Emoloyment, The observed decline of permanent employment InPernambuco during the 1960s can be construed as evidence that the introductionof severance pay legislation induced a significant shift in farmers' labordemand away from permanent labor, because none of the other determinants ofrural labor market structure suggested in Section III was changing bothsignificantly and in the direction predicted to induce decline in thepermanent employment share.21

The 1960s brought a net increase in area under cultivation and sugarcaneproduction, though most of the expa.ision was experienced in the first half ofthe decade (see Table 3). This was a period of little mechanization, soharvest sea1son labor requirements must have risen at least in proportion.Even though the rate of growth in production slowed in the second half of thedecade, wage data available after 1966 (see Table 4) show that real wages fortempc-ary workers rose significantly between 1966 and 1969. Productionexpansion leading to such tightening of labor markets should have beenassociated with rising permanent employment shares. The real wage dropped inthe last year of the decade, but one year of slackening labor markets isuniikely to explain the observed net decline in permanent employment over the1960s. Since the obligation to make severance payments makes abrupt permanentemployment reductions costly, farmers are .ikely to reduce permanentemployment in response to a slackening of labor markets only slowly.

The cost of financing slack season wage payments, and thus thefinance-charge inclusive cost of permanent labor should have fallen during thesecond half of the 1960s, as Brazil's national program of subsidized ruralcredit began to expand. Such a change would also be expected to increase thepermanent employment share.

The 1960s brought very little in the way of either mechanization or useof modern inputs (such as herbicides) to this region. Through the mid-1970s,

21 Such strong statements are not possible about the effect of the legislationon rural labor markets based only on experience in Sao Paulo, where changes inproduction techniques and in crop mix confounded the effects of legislationduring the period.

19

analyses of Northeatern sugarcane production described Its backwardnessrelative to sugar cultivation in SAo Paulo, commonly reporting that the majortasks continued to be performed manually there because humid soils and verypoor topography made mechadization nearly Impossible and because the machineindustries were located In the South and thus produced machines designed forthe very different topography (Huetz de Lemps, p. 162). There is also noevidence to suggest that concentration in operational land holding waschangn sigpificantly during this period.

Thus, if the legislation had not been introduced, the importance ofpermanent employment should have remained uncwMged or perhaps risen sllghtly.The only possible explanation for the observed absolute and relative declinein permanent employment, then, is the Imposition of the Rural Labor Statute.More precisely, the elements of the Rural Labor Statute that remained in forceafter 1964, namely the severance pay and employment stability provisions, musthave induced the signilfcant shift away from permanent employment.

20

V. "Economic Development" and the Rise of Modern Permanent Contracts

&noIg Develonments Jo Lth ona da Mata during the 1970s. The 1970sbrought tightening labor markets. as evidenced by rising temporary wages (seeTable 4). Sugarcane production expanded (see Table 3) In response toincreases In the administered price of sugarcane, and to other governmentalsubsidies for the modernization and fusion of sugarmills and, beginning laterin the decade, for the expansion of alcohol production. These demand-sidecauses of tightening labor markets were reinforced by a decline in the 22seasonal migrant workforce traditionally tapped during the harvest season.As output expanded, cultivation on lower quality land should have generatedtechnical reasons for an Increase in the ratio of slack to peak season laborrequirements, and as labor markets tightened recruitment costs must haverisen, and the effective cost of permanent wages :.nd benefits should havefallen relative to temporary wages. Such devek r.nents should, and apparentlydid, increase the relative importance of year-round employment.

Rising wages and recruitment costs may also have encouraged somnemechanization, which in this region primariiy saves on harvest season laborand contributes to further increases in the permanent employment share.According to 1970 and 1980 Agricultural Censuses the numbers of both tractorsand harvesting machines increased during the period, though the numbersremained small. The ratio of cultivated acreage to tractors fell from over435 to around 220, while the ratio of cultivated acreage to harvestingmachinery fell from about 3500 to under 1900. The extent to which theseincreases in stocks led to increases in mechanization of agricultural tasks issubject to question. The purchase of equipment was facilitated by subsidizedcredit, but maintainance and operation were not subsidized. Stories offarmers finding it cheaper to buy new machines than to repair not-very-oldones, and of farms on which operational machines were greatly underutilized(Sales, p. 119) are not uncommon. Likewise there are stories of farmersimporting harvesting machinery from the South of Brazil, only to discover thatIt could not be operated on the worse terrain of the Northeast. Discussionswith farmers in 1989 suggested that mechanization did not begin in earnestuntil at least the very late 1970s.

It is Impossible to attribute the entire increase in the permanentemployment share during the 1970s to the effect of tightening of rural labormarkets, because the rising volume of highly subsidized short-term credit alsomade permanent employment increasingly attractive. Interest rates on ruralcredit were fixed in nominal terms at between 12 and 18 percent per yearduring the 1970s, while inflation rates rose from around 20 percent per yearin 1970 to over 75 percent in 1979. According to discussions with farmers,and by inference from Agricultural Census data, it appears that mostslgnificant employers in the region obtained loans sized according to

22 In conjunction with a 1978-79 survey of seasonal migrants in the Zona daMata (B. Andrade), reseachers noted that emplovers complained of the shortageof seasonal migrants (p. 131) and sensed It was a result of increasedpermanent migration of the small farmers in neighboring regions to urbancenters (p. 145). Migrants were coming from farther away than they had in the1960s and in many cases had to be provided with transportation and temporaryhousing on the farm (p. 146).

21

reasonably generous per-acre rates. According to the 1980 AgriculturalCensus, 70 percent of farms with cropped acreage of at least 100 acresobtained financlng. This suggests that the majority of employers did indeedenjoy low effective marginal costs of short-term finance during the 1970s.

The subsidized rural credit program may have contributed to a smallreduction In the concentration of operational land holdings, since It may haveencouraged some sugarmills owning vast tracts of land to rent out parcels (ofsay 100 to 500 hectares) to farmers, who were entitled to subsidized ruralcredit under more generous conditions, and who would take charge of thesmaller agricultural operations and agree to supply their cane to thesugarmill. The 1970 and 1980 Agricultural Censuses show a several percentagepoint decline in the share of total land belonging to operationalestablishments of greater than 1000 acres over the course of the period,especially in the southern subregion of the state, where land distribution hasalways been more skewed than in the northern subregion. This reducedconcentration in production operations would have -;ended to induce a smallreduction in the equilibrium permanent employment share, though clearly theother effects of tightening labor markets and cheap short-term credit werestrong enough to outweigh this.

Implications for he Economic Development Debate.' Many studies ofBrazilian rural labor markets are shaped by the bleak prediction thatcapitalist agricultural development leads inevitably to the-proletarianizatlonof rural labort,which is identified with the rise of temporary laborarrangements. This stands in stark contrast with various theoreticaldiscussions of the mix between permanent and temporary wage labor arrangementsin developing country agriculture, which aim to demonstrate that economicdevelopment naturally brings with it an iWrease in traditional,feudal-looking permanent labor contracts.

The apparent contradition may be resolved by observing that thedefinitions of development Implicit In the two views are quite different. Intypical analyses of Brazilian experience, the term "capitalist agriculturaldevelopment' refers to the exDansion of cash crop nroduction at the expense ofsub--istence crops. to the increased purcnase of modern inputs, and to themechanization of agricultural tasks. By "proletarianization" they refer tothe ruse ot temporary labor relationships, as wen as to the alienation ofworkers from the land through loss of access to ceded subsistence plots, tothe loss of personalistic ties between worker and employer, and to thetransformation of workers into pure cash wage laborers. In the theoreticalliterature, on the other hand, "economic development' is taken to be anydevelopment that leads to tightening in rural labor markets and to rising wagelevels.

Both arguments capture part of the multidimensional development story,

23 For example, most contributors to the UNESP conference volume see the riseof the b6ias-frias as "stimulated by an emerging capltalist system.(p.27)"24For example, Bardhan (1983) constructs his theoretical model "to show howeven capitalist agricultural development may involve a strengthening of theinstitution of labor-tying (p. 501);" and Eswaran and Kotwal aim to explainthe observation that "the incidence of this seemingly backward Institution[permanent employment] appears to Increase in response to what may beconstrued as modernizing stimuli (p. 162)."

22

but both also need to be amended. The crowding out of subsistence plots bycash crop production may have explained rural labor market transformatiols ofthe 1940s and 1950s, but has not been an Important source of change since the1960s. The assumption that mechanization tends to increase reliance ontemporary labor, probably drawn from obsation of experienoe In Sao Paulo,also cannot be applied to the Northeast. The experience in Pernambuco duringthe 1970s does strongly suggest that labor market tightening can significantlyincrease tlg permanent employment share, as suggested by the theoreticaldiscussion. But the permanent contracts that were on the rise durig the1970s were not the traditional feudal-looking permanent labor contracts of theearly 1960s. They were modern, explicit permanent employment contracts ratherthan complex labor relationships involving personalistic ties. Though theprovisions of the Rural Labor Statute catalyzed this change in the nature ofthe permanent employment relationships, some transformation may well haveoccurred even in the absence of such legislation, as farmers' concern withavoiding recruitment costs rose in Importance relative to their concern withproviding incentives for subjection or with reducing labor costs through theprovision of In-kind payments.

VI. Rural Credit and the Recent Relative Decline In Permanent Employment

Brazil like many other countries, has relied on subsidized credit forachieving agricultural policy objectives. Such policies have long drawncriticism (see Adams and Graham; Sayad), but little real change wascontemplated until macroeconomic crisis in the 1980s required the removal ofrural credit subsidies. Interest rates on rural credit began to rise in 1980,though they remained fixed in nominal terms below rates of general priceinflation until 1983. Rural credit became subject to partial indexation in1982, and to full indexation plus Interest of 7 to 9 percent in 1987. Sincerural credit was indexed to general price indices, while at the end of theperiod the price of sugarcane fell relative to such indices, ex post interestrates in units of the output became very high indeed.

This increase in the cost of short-term finance was felt widely amongemployers in the region. As late as 1988-89 a great majority of farmesrepresented in the sample continued to borrow; and a number of those who didnot use credit in that year commented that it was the first time they did notseek credit. The effect on permanent employment of the resulting widespreadIncrease in the relative cost of pemanent labor could explain the observedrelative decline in permat employment in the 1980s.

Though analysis of the 1970. did not allow interest rate effects onemployment structure to be disentangled from the effects of labor markettightening and of m ition, analysis of the 1980s allows the conclusionthat the inteest rate effect must have been strong. Of aU the changesimpactlng on rural labor markets during the period, only the interest rateincrease can explain the decline In the permanent employment share. Manyother changes were taking place during the period, but all would be expectedto bring Increses In the prmanent employment share.

2 Whether it is appropriate to label as "development an expansion based uponsubsidies and associated with great distortions in national resouceallocation is another questton.

23

Both area cultivated and the volume of sugarcane production experiencednet expansion (see Table 3). Though the administered pace of sugarcane begato fall with respect to general price indices after 1982, the effective priceof cane seemed to be rising for many growers In the region. The great Incrain the region's sugar refining and alcohol distilling capacity, stimulated bysubsidized credit In the 19709, came on line In the early- and mid-1980s,gneratiWg inten competition between the mills for suppliers' cane.Farmers' certainty of selling their cane In a timely fashion increased. Somesugarmills began to offer free transport, input provision and in some casesside payments. Expanding production brought with It rising vwages (Table 4),and would be expected to bring an increase In the permanent employment share.

Average no-wage benefits for temporary workers were rising relative tothose for pumanent workers during the period, as temporary workersincreasingly sued for paid vacations, Christmas bonuses, severance pay andother provIsions of rual labor legislation, which had long been paid for mostpermanent workers. The the return to the use of strikes after 1979 gave unionleadership an incentive to include temporary, previously nonunionized labor intheir campaigns. The expanded relevance of social security provisions fortemporry vworkers Is indicated by the observation that by 198-9 around 40percent of temporary workers were registered with the Ministry of Labor,though vlrtually none had been in 1978-79.

In addition the costs of recruiting labor in the harvest season wererising. The distances employers had to go to find workers increased, and theybegan to provide transportation and temporary accomodations of increasingquality. Further, the timely execution of harvest season tasks Increased inImprtance after 1983, when the price planters received for their cane beganto depend on Its sucrose content.

The 1980s brought more mechanization of harvest tasks than did the yearsof cheap and abundant credit in the 1970s. The survey suggests that the shareof sugarcane area harvested semi-mechanically rose from around 20 percent In1978-79 to over 40 percent in 1988-89 (mostly on large farms), consistent withthe observations of sector experts. Whether stimulated by rising wages andreruiitment costs. or by the new production of mechanical harvesters in, andappropiate for, the Northeast, this should have generated an increase In thepermanent employment share.

D#pi}te reports of increased herbicide prices relative to official dailywages, which would be expected to increase permanent employment and reduceherbicide use, a number of farmers began using herbicides during the 1980s.Even if the price reports are Inaccurate and the relative price of herbicidesdeclined, the decline In the permanent employment shre on many farms where noherbicides were used would remain unexplained. If the relative price ofherbicides rose as reported, the Increase in herbicide use would appearanomalos, but could in part be explained as a reslt of the interest rateincrease. The Increase In interest rates should have increased the discounted

26 Deflated by the Fundafto GetutUo Vargas "Index 2?, ft fell 40 percentbetween 1981 and 1986.

27 According to the records of a major producer in the region, the price of alitre of herbicide rose 182 percent relative to the price of a ton of cane and110 percent relative to the official daily wage between 1982 and 1989.

24

cost of slack season labor usUproportionately more than It Increased thediscounted cost of herbicides. Further, lncreased interest rates on creditmade self-finance more attractive, at the same time that high and variableinflation may have made chemical herbicide stocks a more attractive form ofsaving for self-finance.

An increase in the permanent employment share might also be expected toreslt from the concentration In operational land holding that occurred duringthe period, both through farmers (of all size) buying up other farms andthrough sugarmills reassuming direct administration of lands previously rentedout. Thus there are many reasons for which the permanent employment shareshould have risen during the early- and mid-1980s. The increase in interestrates is the only explanation for decline, and thus must have had a powerfuleffect on the structure of agricultural wage labor demand.

Vn. Coclusion

An attempt in the early 1960s to legislate the emergence of "developed"labor relationships in Brazilian agriculture proved counterproductive.Provisions designed to stabilize employment led to modernizing changes inthe nature of permanent labor contracts, but also to the replacement ofpermanent contracts by temporary employment arrangements. During the 1970stightening labor markets - what some might call "development' itself - beganto bring about the changes that the legislation had tried in vain to effect,increasing the importance of permanent or year-round contracts. Thisdevelopment was, however, fueled by price and credit subsidies that could notbe sustained. Through the early- and mid-1980s, production and employmentcontinued to expand and labor markets continued to tighten, but Interest rateson rural credit began to rise, incre&sing the cost of paying labor during theslack season and inducing employers to increase the share of workersdisemployed at the end of each harvest. Adjustment to higher interest ratesand to reduced production subsidies has been and will continue to be costlyfor the most vulnerable of the rural population in this region, because laboris not easily absorbed into nonagricultural production, especially when it isreleased from agriculture only seasonally. Ironically, the very severance payand job security provisions that generated the 'problemW in the 1960s may nowprove useful in reducing the costs of adjustment. These provisions leademployers to release workers on a 'last in, first out! basis, protecting theolder workers who have cut cane all their lives and would have greatdifficulty finding other work.

Zs An increase in the interest rate Increases the discounted cost of herbicideuse while leaving Its potential benefits (second period production) unchanged.The increase In interest rates simlarly increases the discounted cost ofslack season labor and leaves its potential production benefits unchanges, butalso reduces a second benefit associated with slack season employment; namely,It reduces the discounted labor cost savings associated with hiring earlyunder two-period contracts. Thus the effect of an Interest rate increase onthe 'net costW of slack season labor Is proportionately greater than theeffect on the cost of herbicides. This is explained In the context of aformal model in the appendix to Aderson (1990).

25

Appendix

lhe 1989 Sample Survey and the Construction of Probability Weights

Statistics In the text describing the Zona da Mata of Pernambuco in thelate 1980s are derived from the sample survey, -Agricultural Production andEmployment Structure." administered during the months of June throught August,1989. The stratified random sample was designed both to be representative ofagricultural employment in the sugarcane producing zone of Pernambuco, and toprovide sufficient variation in economic circumstances to allow econometricanalysis of rural labor contract offer decisions. A first stage sampling of12 mzicipalities within the region guaranteed variation in local conditionswhsle economizing on municipality level setup costs. Within each municipalitythe available sample frame allowed construction of a random sample ofagricultural properties stratified by size.

The observational units, farms, differ from the sampling units,properties, as defined below. This complicates the calculation of theprobability that a given farm is included in the sample, thus complicatingexpansion of sample information to population estimates. Once theseprobabilities have been calculated using the procedures discussed below, theproblem of estimating population characteristics reduces to one of accountingfor sampling with unequal probabilities, a problem to which standard(Horvitz-Thompson) estimators may be applied.

First Stage Selection of Municipalities

The population of municipalities was defined to include the maingeographically contiguous sugarcane producing region within the state ofPernambuco. Agricultural Censuses delineate three traditional sugarcaneproducing "microregions" located along the coast, the Zona da Mata Hmida, theZ=na da aib Seca and Greater Recife, (jointly called the ona_ da Mata).Transitonal sections of two adjacent microregions should also be represented.

After stratifying by microregion, the municipalities were stratified byan index of "isolation," as defined in Table A.1, intended to capturedifferences in the degree of nonagricultural development (and employment) andthe ease of access to other more developed areas (via highways). Some of thelarger microregion-isolation index cells were further stratified by proximityto Reclfe. which is likely related to ease of access to markets foragricultural machine and technology, and to the degree of organization ofworkers' unions.

The resulting strata and selected municipalities are shown in Table A.

2 Two cells g 2 unrepresented in the sample are the transitionalmicroregion Arste iententrimWn and the regional center of the municipalityof Jaboatio in the microreion of Greater Recife. The first was excluded atthe sample fram construction stage, because of difficulties with the INCRArecords. The second was excluded in the field work stage because oflogistical problems. That municipality has in fact become so urban that manyof the properdes in the sample frame have been converted into real estatedevlopments and the producers on those that remain farms were extremely

26

One municipality was chosen in each category - with the exweption of thecategory with largest weight in the region's rural labor market. in which twomunicipalities were chosen. Weights in the region's labor market weredefined as the shares in the total of the product of non-family workers andthe number of farmers over .0 hectares, as reported In the 1980 AgriculturalCensus. Despite having sampled the municipalities ramdomly, *populationestimates in the text refer only to the 12 municipalities studied, since ItIs the author's judgement that presentation of results expanded to the regionas a whole would be misleading.

Second Stage Stratificatior, by Property Slze

Within each municipality the sample frame was constrcted from theRelacao Dgal Prefeitura (Listing for Municipal Government) of INCRA (NationalColonization and Agrarian Reform Institute), which Is derlved from cadastralsurveys from the 1970s plus update forms filed when land transactions arecarried out. The listing identifies geographically contiguous areas owned byindividuals or corporations within the municipality. The sample frame wasconstructed from the listing by aggregating across listings belonging to thesame owner, and thus identifies prolerties, defined as the total land areas(contiguous or not) belonging to specific owners within a given municipality.The sample was constructed by stratefying by size and sampling randomlywithout replacement within each municipality-size group.

Since the primary objective of the survey was to study wage (rather thanfamily) labor markets, properties of less than 20 hectares (often operated byfamily alone) were excluded from the saple. The remaining properties werestratefied into the size categories shown in Table A.2, which also lists thepopulation total numbers of properties and total area in each cell for eachmunicipality in the frame.

Inclusion of Sample and Nonsample Properties

The original goal was to include four properties from each size group Ineach municipality, except where the population in the cell was less than four.In the field it rapidly became clear that the optimal strategy for maxnimiingresearch value - as a function of quantity of information gathered anddiversity wlthin the sample ai well as representativeness - subject to thetime and budget constraints, was a pragmatic rather than purist strategy. Themarginal cost of including some sample elements - perhaps requiring the teamto spend an additional day in the region with only a small probability ofinterviewing the farmer - was very high, while the marginal cost of includingsome nonsample elements was nearly zero. Thus the field strategy was to seekout first the farmers in the sample; but when team members found themselves ona given day unable to find and interview any more sample farmers, theyinterviewed available nonsample farmers. When the author judged that theprobable interviews of sample farmers within the community no longercompensated the costs of remaining, the team moved on to another community.Thus the statistical proprties of the actual sample are complicated both bythe noninclusion of some target sample elements and by the inclusion of somenon-target sample elements. The distribution of sample and nonsample elements

difficult to locate and interview. (The sugarmills of the region wereinterviewed and are in fact the principle land owners with agriculturalinterests.)

27

by municipality are shown in Table A.3.

This strategy was Judged superior to a purer strategy of Including onlyfarms in the target sample because the gain In total Information was greatrelative to the cost. The author's observations in the field were that thebiases introduced by the strategy probably were not great. The exclusion ofsome sample elements dld not, for example, systematically leave oLt farms wlthdifficult access or nonresident farmers, since great effort was made toovercome these obstacles. Exclusion resulted more often from timing problems,the expected effect of which Is similar across all farms. Nonsample elementswere not included on a volunteer basis, which would have Introduced the selfselection of relatively well-informed, forthcoming farmers. Instead they werefarmers approached in the same way the sample farmers were. Despite thesesupportive observations, statistical results achieved with these data shouldbe analyzed for sensitivity to exclusion of the nonsample elements. In thecalculation of weights described below, the nonsample elements are treated asIf they were systematic "substitutes" for sample elements, being assigned tostrata accordtng to the size of their "headquarters! pieces.

The Relationship Between Observational and Sampling Units

For the purposes of understanding economic behavior, the desiredobservational unit Is the farm, defined as the entire area, contiguous or not,either owned, rented or occupied, on which a single producer makes production,land use and employment decisions and over which the services of (quasi-lflxedfactors are distributed. The farms about which information was eliciteddiffer from the Dro2rtixs in the frame most obviously as a result ofsubstantial (though not extremely flexible) land rental arrangements. Inaddition, some farmers register their holdings as several small properties(typically in the names of relatives), in order to reduce tax liabilities orthe risk of expropriation. Finally, despite the recent date on the listing(1985), the field work revealed It to be quite out of date. Many owners hadlong since died or sold out, so that (actual) farms differed from propertiesas a result of sales and inheritance.

As a result of sales, bequests, expropriations and out-rentals, aproperty may be defined as divided into a set of sections under theadministrative control of different farmers. Any section may be combined bypurchase, inheritance or in-rental with (sections of) other properties to forma farm. The section then constitutes one pij of the farm.

The desired sampling strateg for dealing with properties that had beendivided into sections was to interview either all relevant producers (if thenumber was small) or to obtain a frame of producers for choosing a randomsample. The most significant case of this problem was that of land owned bysugarmills that rent out a substantial proportion of their land to planters.Information for systematically construting the third stage random sample wasnot available, and the samples of sections were instead generated by'circumstances." In the construction of welghts described below, theseobsevations are treated as If they were drawn randomly from a list ofsectios.

A final complication in the relationship between farms and properties hasto do with sugarmil's large land holdings that cross municipality bounaries.Only three sugarmills interviewed operate in two sample municipalties, butmost operate In nonsample as well as sample municipalities. The questlonairesapply to the entire scope of their operations, not merely their operations in

28

thoe sampled municipality, and provide no breakdown specific to the sampledmueipality. Thus In order to scale their resoses down to prevt swampingotbhr observatios when caculatiag muwieipallty means and ratios, the INCRAreords of their holdings In the municipality, corrected for rentals andpuchases observed In the sample, are assumed to be accurate measures of thescale of their operations In the muniepality. lTheir characteistics are

ultiplied by the ratio of their area of operations within the municipality totheir total area of operations as declared In the questionalre.

A Farm's Probability of Deing Sarnpled

mhe sample contains farms with one, two, three and four pleces, asdefined above. The probability of a farm being included in the sample equalsthe probability that one or more of its pleces are selected. Ignornginitilly the possiblity that some of these pleces are sections rather thancomplete properties, calculation of farm sampling probabilities may bedescribed In the following way. Index a farm l's pieces by jm1l...,m. whwe

i IS the number of pieces on farm I (less than or equal to 4 in this sample).

Let a u.l,...,m 1 . denote the probabilities that the various pieces of farm

I are selected In the process of stratified random sampling on propertieswithout replacement. Then

N(s s j 1

where si indicates the straturn to which piece iJ belongs, and where n(sj)

and NISlS) are respectively the sample and population total numbers of farms

In that stratum.

Let x. k denote the probability that pieces J ad4 k of farm I are

seected. Since selection of properties In different strata Is independent,

1.J,1k }iik w'hen sij 0 SW (O)

Since sampling of properties is Without replacement,

n(s ns ) - 1)WiJ ik a -- -- _w_ 11 vhen si, u s,k. (3)

Me(i) (N(s.j) 1)

Corresponding calculations may be made for all possible combinations of two,three and four pieces.

After constructing al the Individual and joint probabilities of thefarm's pleces befin sampled, and setting the xj's equal to zero when the

plee Index (j) exceeds the number of pleces on farm i (mn). the probablity

that the farm enters the sample Is Just calculated as the probability of theunion of four events (the selection of the four pieces):

4

Jul J J<k ( Jlk J<(k(l ,k,l

Return now to the possbibty that piece t1 is a section of a property

29

rdter tban a complete property. 'he probability that plec IJ Is drawn isthe product of tho probability that the property of which It Is a part Isselectod In the random sampling of propeties and the conditional probabilityof choosing the given section given that the property Is selected. If thesection is the entire property, the conditional probability of choosing thesOcion is equal to one. When the section is smaller than the property, theconditional probability Is estimated by the ratio of the number of sections ofthat property Included In the sample to the estimated total number of thatproperty's sctions. Mme total number of that property's sections Isemated by dividing the property's t z area according to INCRA records bythe mean observed section size, and rounding up to the nearest integer.

Denote these conditional probabilities by 7w;, Jia,...,m . To account for thedividson Into sections, then, the right hand side of expression (1) must be

multipled by wj and the right hand side of expression (3) by xijxik.

Now consider the modification of these probability weights for use withanswers to retrospective questions (regarding production and employment tenyears earlier). Modiflcation is required both because some farms acquired orisposed of land during the ten-year period, and because some farmers did notrespond to this section. In order to compensate for missing observations, theWeights for farms with nonmissing data from the same municipality and farmsize group as an observation with missing data are scaled up until the arearepresented by the farms with nonmissing data equals the unadjusted total forthe entire group. Differences between 1978-79 farm sizes and 1988-89 farmssizes were taken to constitute farm pieces that had changed hands during theperiod, and were assumed to be pieces of properties from the same municipalityand farm size group as the resulting 1988-89 farm. The weight of a pieceacquired during the ten-year period were subtracted from the acquiring farm's198849 weight, while the weights of farms in the municipality and farm sizegroup from which the piece was assumed to come were scaled up appropriately.The weight of a piece disposed of during the ten-year period was added to thedisposi farm's 1988-89 weight, while the weights of farms in themunicipality and farm size group to which the piece was assumed to go wereschled down appropriately. The assumptions concerning the farm size groupfrom which the plece came or to which It went were varied, with little effecton population estimates made with the resulting weights.

Ho rvtz-Thomp_ou Estimates of Population CharactriicsConsider the population of farms Indexed i-I,...,N. and their (nonrandom)

values of some characteristic, (for example, the number of permanent workers),y1 y2, ... , Represnt the sampling scheme by associating with the farmsthe random variables, aN, a2,...,aN, that equal one (with probabilities a,,

x2! .... If the farm is Included In the sample, and zero otherwise. The

expected value of aN is xi and Its variance is w1(i-w1).

Thc population total of the characteristic Is given byN

Y ZIYi-1

and the Horvltz-Thompson estimator (Konlin) of Y Is

30

A N y1 ay a~ 2

Cloarly Y s unbias etifator of Y. Te sampling variane of Y Is2N yi Y Y

Var(Y) -3Z -- Vartal) + 2 E Z = CAL aa,)Ny1 Cov(a sst)

N r2ri- I-XI 2 £ z J (, WjE j s

i-t I <J u"iJVariance calculations require joint probablitiexsucas equal to the

probability that farm I d farm j are Incuded In the sample. In thecase of the present study, those joint probabilities are equal to thoe productof the individual probabilities if farms are from different municipalities orhave no pleces from a common sin stratum within a municlpality. If any pieceof one fam Is from the same stratum (and municipality) as a piece of theother, the events are not independent, but the calculatin of the jointprobability is straightforward (though tedious and not detailed here).

The text presents population ratio estimates (R) calculated by dividigone suec estimated population total by another. That Is,

R * -x

Following KonUin (1973. p.47-8,147-8), estmate an approximate sampling variance of this ratio estimator along the following lines. If the bias of Ris small, Its variance will be close to

A ~ [ xin r(-R )E [UR- R)2 1

With X close to X, this in turn wil be close to

-x E IY - R)21 - Var 1D)

where Var(D) Is given by exprossIon (5) above, substituting dj.7 Rx1 for y1.

This approximate variance may be estimated by substituting X for X and,-y,-Rx1 for d,. Such estites were calculated for all ratios przesnd inthe tex Though statisical significance cannot be inferred from thevariance estUmates without kowinAg the distribution of the ratio stattic,the small magnitudes of the standard deviations (generally on the ordr ofthree percentage points) suggest the population ratio estimates ae reasonablygood. This is no srprise, since most of the lr famer and thus a veryhlgh pecentae of total land area in the sample mwnlcpallties, ae hIludedIn the sample.

31

8 }1!~~~~~~~~~~~~~~~~~~~~~~~~*

E .j 4-Wi E Q

l} iiiilpE i Wt w b i s |] i pg , XrRg o g | l s fi

lIgE4sijj@ j '|v W0 e *3

32

gX:I I I

X i I I} } w lE }} lE- II

I~ l1|Sf ;

'U~~~~~~~3

Table 3

Area and Production of Sugarcane In Pernsmbuco, 1950-1985

(a) (b) (c)Production Area Productivity

Year (tons) (hectares) (tons/ha.)

1950 5422832 151804 35.7

1955 6809740 193270 35.2

1960 8536855 214150 39.9

1965 10483986 242459 43.2

1970 10919736 238605 45.8

1975 12826080 267210 48.0

1980 16568949 3U4801 48.1

1985 20926398 413361 50.6

1987 22786522 431282 52.8

Sources: 1950-1975, Brazil. IBGE. Anuadg stat'stl g Brasll.1980-1985, Brazil. IBGE. Prgdc Mlelal AgrIcola_Nordeste3

34

Table 4

Index of Real Agrlcultural Dally Wage In Pernambuco

Year Index

1966 100.01967 131.71968 105.91969 96.81970 90.61971 99.21972 97.91973 116.51974 162.41975 168.41976 158.41977 162.21978 169.51979 171.71980 185.21981 200.01982 195.21983 144.11984985 162.4

1986 213.4

Sources: Average second semester daily wages for temporaryagricultural workers In Pernambuco, Fundaq&o Get%llo Vargas,Centro de Estudos Asricolas, unpublished; General Price Index,Fundaqlo Getillo Vargas, Conijtura, Econ8mica.

35

Tabl*e A. IMunicipalities Selected in lFrt-Stao Saaplig

With Indlcatlon of Cell Characteristics

lmbe ofLevl et Prasaity tMMicipalit1*8

Nwdcipallty Nicroregion(l) "Isolattit(2) to 3ecit. In Cell

Itambe Hat& Seca I - 3

Tracunha#n 2 Near 2

acaparana fr 6

Golana 3 - S

Slrinha6u Mata Kuwida 2 Rear 4

Agua Preta Midrange 3

Si. Senedito do Sul * Far 3

Ribeirlo 3 Near 4

Escada ' U go

Barreiros Par 4

Cabo Grande Recife 3 - 3

Pombos Agreste Sententrional 2 - 4

(1) Iticroregions a defined by the Agricultural Census of 1980.(2) The %lsolatlo" Index Is dflned as follow: t-with smll town and

without prinipal -Iughway; 2-with smal town and with principal high-way; 3-with large town and principal highay.

36

Table A.2Number and Total Area of Properties In the Population

By Municipality and Property Size Category

Property Size Number of Total Area InMumtcipalty Category Properties Category (ha.)

Itamb6 20.0 - 49.9 ha. 22 772.950.0 - 99.9 ha. 20 1394.0100.0 - 199.9 ha. 23 3448.9200.0 - 499.9 ha. 25 8294.6500.0 - 4999.9 ha. 11 10563.25000.0 ha. and over 0 0.0

Traeunhaft 20.0 - 49.9 ha. 9 269.050.0 - 99.9 ha. 1 64.0100.0 - 199.9 ha. 3 437.7200.0 - 499.9 ha. 14 3911.9500.0 - 4999.9 ha. 8 9281.05000.0 ha. and over 0 0.0

Macaparana 20.0 - 49.9 ha. 38 .172.650.0 - 99.9 ha. 19 1289.6100.0 - 199.9 ha. 8 1227.0200.0 - 499.9 ha. 9 2639.8500.0 - 4999.9 ha. 3 2342.05000.0 ha. and over 0 0.0

Golana 20.0 - 49.9 ha. 24 769.150.0 - 99.9 ha. 14 912.8100.0 - 199.9 ha. 1.1 1531.9200.0 - 499.9 ha. 13 3883.7S00.0 - 4999.9 ha. 10 9360.85000.0 ha. and over 2 31380.0

SIrinha6m 20.0 - 49.9 ha. 45 1602.850.0 - 9.9 ha. 8 625.7100.0 - 199.9 ha. 6 843.6200.0 - 499.9 ha. 9 2755.5500.0 - 4999.9 ha. 4 3915.95000.0 ha. and over 1 22830.2

Agua Preta 20.0 - 49.9 ha. 95 3226.050.0 - 99.9 ha. 16 1140.9100.0 - 199.9 ha. 23 3162.7200.0 - 499.9 ha. 25 87S9.1500.0 - 4999.9 ha. 27 32625.3S000.0 ha. and over 2 15451.3

37

Table A.2 (continued)

Sb BEonedito 20.0 - 49.9 ha. 34 1095.5

do Sul 50.0 - 99.9 ha. 14 2001.0100.0 - 199.9 ha. 17 2404.8

200.0 - 499.9 ha. 10 3199.3500.0 - 4999.9 ha. 10 13605.15000.0 ha. and over 0 0.0

Ribeirbo 20.0 - 49.9 ha. 111 4319.350.0 - 99.9 ha. 6 419.7100.0 - 199.9 ha. 1 130.5200.0 - 499.9 ha. 8 2740.3500.0 - 4999.9 ha. 5 4502.8S000.0 ha. and over 2 16512.4

Escada 20.0 - 49.9 ha. 25 713.9S0.0 - 99.9 ha. 8 506.3100.0 - 199.9 ha. 8 969.7

200.0 - 499.9 ha. 13 3683.4500.0 - 4999.9 ha. 17 12989.9-000.0 ha. and over 3 18329.8

Barreiros 20.0 - 49.9 ha. 6 169.750.0 - 99.9 ha. 7 591.4100.0 - 199.9 ha. 22 2867.3200.0 - 499.9 ha. 14 4659.7500.0 - 4999.9 ha. 11 18521.75000.0 ha. and over 1 12S61.8

Cabo 20.0 - 49.9 ha. 31 937.45O.0 - 99.9 ha. 12 844.0100.0 - 199.9 ha. 5 730.3200.0 - 499.9 ha. 8 3033.3500.0 - 4999.9 ha. 11 13902.45000.0 ha. and over 1 12704.5

Pombos 20.0 - 49.9 ha. 113 3318.150.0 - 99.9 ha. 33 2116.2100.0 - 199.9 ha. 12 1496.S200.0 - 499.9 ha. 6 2034.8500.0 - 4999.9 ha. 3 3680.05000.0 ha. and over 0 0.0

38

Table A.3

Numbers of Target and Non-Target Sample ElementsBy Municipality

lnicipality Target Non-Targot

Itamb6 15 4

Tracunha6m 15 3

Macaparana 16 3

Golana 18 2

Slrinhaem 14 6

Agua Preta 15 5

S&o Benedito do Sul 17 2

Ribeirbo 16 4

Escada 9 8

Barreiros 16 2

Cabo 12 7

Pombos 14 2

Other(1) - 7

(1) Five sugarmills operating outside the set of samplemunicipalities, and two farmers from a municipalityinitially Included In the sample but later dropped.were Interviewed and are Included under "Other"municipalities.

39

REFERENCES

Adams, D.W. and D.H. Graham (1981). "A Critique of Tradiational AgriculturalCredit Projects and Policies," Joumnal of DevelgM Economics. Vol. 8,No. 3, pp. 347-366.

Alves, M.H.M. (1985), Sa md O2aosion In Miltar Brazil.Austin: University of Texas Press.

Anderson, J. (1990), "Rural Credit and the Mix Between Permanent and TemporaryWage Labor Contracts in Pernambuco, Brazil," Stanford University.

_____ (1989), Workers' Residence, In-Kind Payments and Contract Lengthin Rural Labor Markets," Stanford University.

Andrade, B. (1981), MisriS' Sazonais n2 Nordeste (RelStfi nk Pesauisa).Recife: SUDENE.

Andrade, M.C. (1986a), Liaa Camgmesas og Ntqg, Sfto Paulo: Atica.

(1986b, A Trr e q Homem no Nordeste (fith ed.), SoPaulo: Atlas.

Baccarin, J.G. (1985), "Trabalhadores Rurais Volantes da Regilo deJaboticabal: Crescimento, Caracteristicas e Aspectos Organuzagbes,"Escola Superior de Agricultura Luiz de Queiroz, Piracicaba, MastersThesis.

Bardhan, P. (1983), "Labor-Tying in a Poor Agrarian Economy: A Theoreticaland Empirical Analysis," Quarterly Jounal of Economics p.501-514.

(1979), "Wages and Unemployment in a Poor Agrarian Economy: ATheoretical and Empirical Analysis," Joumal of Political Enom. p.479-500.

Callado, A. (1980). TemDo n Arraes: A YLu9iA am Vlolencia (third ed.),Rio de Janeiro: Paz e Terra.

D'Inwlo e Mello, M.C. (1976). Q 'Bo:ia-Fr ba Miser a. Petropolis:Vozes Ltda.

Federagqo dos Trabalhadores na Agricultura do Estado do Parana (1982),"Trabalhador Volante ('6ia-fria')," odeObra Volante la icultura.Universidade Estadual de Sgo Paulo - Botucatu, p.77-84.

Galiza de Ollveira, C.F. (1986), "0 Emprelteiro - Elemento Intermedirlo naContratagbo de Mbo-de-Obra Volante na Zona Canavilera P Mana"Cadernos do de fujtda I A Q SocaL, Salvador, p.41M3.

Garcia, A.R. (1975), TZ:era d lblho. Dissertation presented in the GraduateProgram in Social Anthropoloa, Rio de Janeiro: Musou Nacional.

(1988). "Libertos e SuJeitos: Sobre a Transigo para TrabalhadoresLivres do Nordeste," Rista 9 Ilra dl Ci clSa cis Vol.3, No.7.

40

Games da Silva, J. and V.L.G. Silva Rodrigues (1982). "A Problematica do'80ia-Fria': uma Revisio Bibliografica," in Mto-de-Obra Volante naAyriculturn Universidade Estadual de S&o Paulo - Botucatu, p. 56-76.

Gonzalez, E.N. and M.l. Bastos (1982), "O Trabalho Volante na AgriculturalBrasileira," in Mb ra n Awricultura. Universidade Estadual de SaoPaulo - Botucatu, P. 35-55.

Graziano da Silva, J. (1982), "O 'Bola-Fria' entre Aspas e com Pingos nos Is,"in MiodeObra Volante na Azricultura, Universidade Estadual de SaoPaulo - Botucatu, p.137-176.

____ - and J. Garcia Gasques (1982), "Diagn6stico Inicial doVolante em Sao Paulo," in Maode-Obra Volante na Agricultura.Universidade Estadual de Sao Paulo - Botucatu, p.85-126.

Heath, J. R. (1981), "Peasants or Proletarians? Rural Labour in a BrazilianPlantation Econom7," Journal of Develoiment Studies, pp. 168-281.

Huetz de Lemps, A. (1977), "La Canne a Sucre au Bresil," Travaux et Documentsde G6ographie Tropicale No. 29, Talence.

KoniJn, H.S. (1973), Statistical Theory of Samole Survey Design and nalvsis,Amsterdam: North-Holland.

Maciel, T.F.R. (1964), Nfvel _ Vida d Trabalhador Rural _a Zona da Mata =%L95 Recife: Instituto Joaquim Nabuco de Pesquisas

Socials.

Melo, M.L. (1975), Q &wscar g Homem: Problemas Sociais _ Economicosd Nordeste Canaviero, Recife: Instituto Joaquim Nabuco de PesquisasSociais.

Monteiro de Barros, H.Q. (1983), "Relag5es de Trabalho e Produtividade naLavoura Canaviera Pernambucana," Boletim Sobre Populacao, Emprego e Rendano Nordeste, Vol.2, No.3. Recife.

Pandolfi, M.L.C. de A. and R.P. de Medeiros (1981), "A Luta dos Trabalhadoresda Cana-de-A9ucar: Sindicalismo Rural e Trabalhadores Volantes," Recife:Fundaq#o Joaquim Nabuco.

Perez de Rezende, N. (1971), ObriVSoe Trbahistas do Emaresador Rural, SloPaulo: LTr Editora Ltda.

Prado Junior, C. (1963), "0 Estatuto do Trabalhador Rural," RevistaBraslln. Malo-Junho, p.1-13.

Price, R.E. (1964), *Rural Unionization in Brazil," Land Center ResearchPaper No. 14, Madison.

Rufino de Ara6jo, E. and C. Rufino Dabat (1988), -SituaqAo dos TrabalhadoresRurals Residentes das Periferias das Cidades da Regifto Canavieira dePernambuco," unpublished tables, Recife.

Sales, T. (1982), Awrft. A-estes, S31o Paulo: Ed. Brasileira de Ciencias.

41

Sampaio, A. (1974), Contrato de Trabalho Rural S&o Paulo: Ed. Revsta dosTribunais.

Sbl Paulo (Estado) Secretaria de Economia e Planejamento (1978), TrbalhoVolnt X Amicultura Paulista, Sao Paulo.

Sayad, J. (1984), Cr6dito W_d njo Brasil: Avalia du Crt £caI daErg2OMAS de Reforma. Sao Paulo: Pioneira.

Sigaud, L. (1979), Os Clandestinos £ g1 Direitos: Estudo aori ikabamblhda Cana=det=a9ucar de Pernambuco, Sbo Paulo: Livraria Duas Cidades.

Silva, G.V., A. Cavalcanti, J.M. Pereira, and W. G. Walmsley (1989),"Avaliatfo e Perspectivas da Agroindustria Canaviera em Pernarbuco;Anallse do Dirigismo Estatal," Recife: Instituto de Desnvolvimento dePernambuco - CONDEPE.

Stolcke, V. (1986), Cafelcultura: Homens, Mulheres g faDital (lQ50-1). SioPaulo: Editora Brasiliense S.A.

Universidade Estadual Paulista (UNESP) - Botucatu (1982), M Obra Vantena Agricultura, Sao Paulo: Livraria e Editora Polls Ltda.

42