Employment Dynamics in the Rural Nonfarm Sector in Ethiopia: Do the Poor Have Time on Their Side?

We study rural employment transitions in Ethiopia between farming and both low- and high-return nonfarm employment. We find that initial asset holdings and access to saving and credit are important factors for transition into high-return rural nonfarm employment and that households' participation in high-return rural nonfarm activities is robust to their experience of health shocks. However, shocks that affect their wealth or liquidity may trigger descents into low- return nonfarm employment. On the other hand, shocks that reduce agricultural income motivate transitions into high-return rural nonfarm employment.