Earnings and Consumption by Indian Rural Laborers: Analysis with an Extended Linear
Expenditure System
N. S. S. Narayana and B. P. Vani, Economic Analysis Unit, Indian Statistical Institute, Bangalore, India
This paper analyzes consumption pattern of agricultural and nonagricultural labor households in rural India using a new extension of the familiar Linear Expenditure System
LES model. This extension accounts for changes in commodity consumption not only due to changes in prices and total expenditure but also due to changes in certain other
“status” variables. The analysis extends to assess differential impacts on consumption pattern due to different welfare programmes.
2000 Society for Policy Modeling. Pub-
lished by Elsevier Science Inc.
1. INTRODUCTION
In India, rural population forms nearly 78 of the total. More than one-third of the rural population is poor. The majority of
them are either landless agricultural laborers or marginal and small cultivators who also work as laborers. This paper deals
with consumer behavior of agricultural and nonagricultural poor labor households in the rural areas whose wage income, on aver-
age, is above 50 of their total income. Because wage incomes are not adequate enough to meet their consumption needs, these
households earn supplementary incomes from other activities such as livestock operations selling milk, dung-cakes, etc., from cattle
and buffaloes, hiring out bullocks, etc., minor cultivation garden
Address correspondence to N. S. S. Narayana, Economic Analysis Unit, Indian Statistical Institute, R. V. College P.O., 8th Mile, Mysore Road, Bangalore, 560059, India.
Very useful comments and suggestions from several critics helped us in improving an earlier draft of this paper. We thank all of them and in particular Professors Sanjit Bose,
Kirit S. Parikh, and A. Vaidyanathan. Thanks are also due to A. K. Ganesh for helpful discussions and H. M. Rajashekara for typing the manuscript.
Received February 1996; final draft accepted November 1996. Journal of Policy Modeling
222:255–273 2000
2000 Society for Policy Modeling 0161-893800–see front matter
Published by Elsevier Science Inc. PII S0161-89389700068-9
256 N. S. S. Narayana and B. P. Vani
and orchard produce, etc., and other household enterprises. They also resort sometimes to selling away their assets and quite often
to borrowing cash and kind loans. Underlying this situation is a distinction between incomes on one hand and expenditure on
the other. This distinction, generally ignored in consumer demand models, is retained in this paper and the Linear Expenditure
System LES model is extended in order to evaluate the individ- ual effects on commodity demands due to different incomes and
dissavings along with the usual price and expenditure effects.
This issue of individual effects on household consumption due to different types of income has been dealt with earlier by Hol-
brook and Stafford 1971 and Benus et al. 1976. However, these studies are not based on estimation of complete demand systems
as we do here.
2. EXTENDED LINEAR EXPENDITURE SYSTEM MODEL
