standard assumption in CGE modeling and it is easily justifiable for the case of Nicaragua, where inequalities in educational endowments and access to education support this assumption.

The assumption that the market for labor is further segmented into agricultural and non-agricultural activities is more controversial. To test its validity, we check whether incomes in agriculture are still below incomes in other sectors once the following wage determinants are controlled for: education, experience, gender, and employment-status variables such as self-employment. Additionally, to account for price differentials across space, geographical variables capturing differences among Nicaraguan regions are included in the wage estimation. Taking the largest nonagricultural sector of employment, “commerce”, as a reference group, the regression analysis shows that agricultural individual labor incomes are significantly below this reference group and the gap widens between unskilled and skilled workers.

_<u>Table 1: Estimation results for the labor market segmentation</u>_

|**Wage equation f**|**or testin**|**g segment**|**ation h**|**ypothes**|**is- Unskille**|**d**|||**Sk**|**illed**|||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|No. of obs.||1255652|||||No. of obs|.|3E+05||||
|F(15, 1255636)||13677|||||F(15, 318|350)|9144||||
|Prob > F||0.0000|||||Prob > F||0||||
|R-squared||0.1431|||||R-squared||0.302||||
|Root MSE||1.2071|||||Root MSE||1.105||||
||**Coef.**|**Robust**<br>**Std. Err.**|**t**|**P>|t|**<br>|**[95% Confi.**|**Interval]**|**Coef.**|**Robust**<br>**Std. Err.**|**t**|**P>|t|**|**[95% Confi**|**. Interval]**|
|**_Individual characteristics_**|||||||||||||
|**Years of schooling**|0.060|3.09E-04|194.8|0.000|0.0596|0.0608|0.227|9.82E-04|230.8|0.000|0.2246|0.2285|
|**Experience**|0.069|2.45E-04|279.9|0.000|0.0681|0.0691|0.078|6.50E-04|120.1|0.000|0.0767|0.0793|
|**Experience squared**|-0.001|3.47E-06|-227.0|0.000|-0.0008|-0.0008|-0.001|1.59E-05|-68.5|0.000|-0.0011|-0.0011|
|**Female**|-0.393|0.003|-149.1|0.000|-0.3983|-0.3880|-0.411|0.004|-101.6|0.000|-0.4188|-0.4029|
|**_Geographical dummies_**|||||||||||||
|**urban**|0.192|0.003|73.5|0.000|0.1868|0.1970|0.044|0.006|7.6|0.000|0.0328|0.0557|
|**(Managua)**|||||||||||||
|**Pacific**|-0.131|0.003|-45.5|0.000|-0.1365|-0.1252|-0.195|0.005|-40.0|0.000|-0.2050|-0.1858|
|**Central**|-0.173|0.003|-54.3|0.000|-0.1795|-0.1670|-0.157|0.005|-31.0|0.000|-0.1672|-0.1473|
|**Atalantic**|0.053|0.004|12.6|0.000|0.0448|0.0613|-0.041|0.008|-5.1|0.000|-0.0563|-0.0250|
|**Self-employed**|-0.146|0.003|-56.9|0.000|-0.1506|-0.1406|-0.438|0.006|-76.8|0.000|-0.4489|-0.4266|
|**_Sectoral dummies_**|||||||||||||
|**Agriculture**|-0.504|0.003|-145.7|0.000|-0.5111|-0.4975|-0.578|0.012|-48.3|0.000|-0.6012|-0.5543|
|**Mining and gas**|-0.021|0.009|-2.3|0.022|-0.0398|-0.0031|0.483|0.008|62.8|0.000|0.4684|0.4986|
|**Manufacturing**|-0.150|0.003|-43.3|0.000|-0.1563|-0.1428|-0.283|0.008|-37.5|0.000|-0.2981|-0.2685|
|**Construction**|-0.258|0.005|-53.8|0.000|-0.2673|-0.2485|-0.601|0.013|-47.7|0.000|-0.6260|-0.5765|
|**(Commerce)**|||||||||||||
|**Services**|-0.222|0.004|-61.8|0.000|-0.2288|-0.2147|-0.001|0.007|-0.1|0.922|-0.0140|0.0127|
|**Government services**|0.023|0.005|4.2|0.000|0.0122|0.0338|-0.390|0.005|-73.7|0.000|-0.4008|-0.3800|
|**Constant**|7.899|0.006|1411.2|0.000|7.8881|7.9100|6.801|0.014|497.7|0.000|6.7739|6.8275|

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