Can Femal Non-Farm Labor Income Reduce Income Inequality? Evidence from Rural Southern Ethiopia

This article examines the importance of non-farm income in reducing per-capita incomeinequality among agricultural households in southern Ethiopia, with an emphasis on thegender dimension. Using a modified technique of inequality decomposition by incomesources applied to household survey data, it was found that female non-farm labor incomeis the only income source that significantly reduces per-capita income inequality. Moreprecisely, a uniform increase in female non-farm labor income, among households thatalready have income from this source, reduces inequality. Encouraging women to devotemore time to non-farm income-generating activities, and creating market mechanisms thatincrease earnings in these activities, could potentially lift households out of poverty and atthe same time reduce income inequality as a whole. The impact on inequality could bestronger if policies are directed at asset-poor households and less-educated households inparticular. One of the policies that could be useful in this regard is female educationalenhancements. This could open more opportunities for women in the hired labor market,improve women's position within the household, and promote overall income inequality aswell as gender equality.