This paper examines the widespread migration to farms in the U.S. during the Great Depression. We show that the option to move to farms serves as informal insurance during times of economic crisis, and that modernization in the agricultural sector reduces the ability of the land to provide this insurance function. The movement to farms also has spillovers on the broader economy, facilitating a decline in market-based expenditure and a shift into home production. At the same time, by absorbing surplus labor, the subsistence farm sector puts upward pressure on nonfarm wages and thus provides a countervailing force against deflation. We also provide evidence that the introduction of formal unemployment compensation reduces the movement to farms later in the decade. Our results bring attention to a less-studied effect by which formal insurance stabilizes the economy during deep crises: it increases market demand by diverting consumption away from home production and towards market-based expenditure.
Boone, C., & Wilse-Samson, L. (2014). Modernization, rural migration, and market withdrawal: Evidence from the Great Depression[Electronic version]. Retrieved [insert date], from Cornell University, SHA School site: