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Off-Farm Labour Participation Factors Among Farmers and Spouses

Explore the factors influencing farmers and spouses' choice of off-farm work using econometric methods on data from Pennsylvania farms. Results show significant impacts of personal, household, and labour market characteristics. Predictive analysis reveals patterns in decision-making.

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Off-Farm Labour Participation Factors Among Farmers and Spouses

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  1. Off-farm labour participation of farmers and spouses Alessandro Corsi University of Turin

  2. The problem • Off-farm work is widespread • It helps the adjustment process of farmers to new market conditions • It is important to analyse the variables that influence the choice of working off the farm

  3. Theoretical model • Off-farm work participation is a dichotomous variable (may be yes or no) • The farmer chooses to work off the farm if the market wage is larger than the reservation wage (= the minimum wage for which he is willing to work off the farm)

  4. Theoretical model

  5. Theoretical model

  6. Theoretical model

  7. Theoretical model • The reservation wage therefore depends on: • personal characteristics (age, sex, education, etc.) • household characteristics (e.g., number of children) • farm characteristics(size, farming system, etc.)

  8. Theoretical model • The market wage depends on: • personal characteristics (age, sex, education, etc) • characteristics of the labour market

  9. Theoretical model • The farmer will have an off-farm job if: • market wage > reservation wage • W > W*

  10. Theoretical model

  11. Theoretical model The market wage can be written: The reservation wage can be written:

  12. Theoretical model The difference between the market and the reservation wage, w - w* is :

  13. Theoretical model For brevity, y*can be written as: (X are all the explanatory variables, and e = m - h is the random term)

  14. Theoretical model y* cannot be observed; it can only be observed if the farmer works off the farm or not. Then: Pr[off-farm work] = Pr[y* > 0] = = Pr[a’X < e] = F[a’X] ( F is the cumulative probability of the random variable e, assumed to be normal)

  15. Theoretical model

  16. Theoretical model • The parameters of the equation can be estimated through a probit model • It yields the probability of the outcome (off-farm yes or no) as a function of the explanatory variables • It is also possible to estimate the change in probability resulting from a change in the explanatory variable (marginal effect)

  17. Data • 351 farms in Pennsylvania surveyed in 1985 and again in 1991 • 351 farm operators • 344 spouses

  18. Data • data on personal characteristics: • age, sex, education • data on household characteristics: • # children of different age

  19. Data • data on farm characteristics: • farm size • principal farm enterprise (dairy, other labour intensive, all-year-round or seasonal - dummy variables)

  20. Data • characteristics of the labour market • employment share by sector • ratio of average nonfarm to farm incomes • unemployment rate

  21. Results • Models estimated for operators and spouses: • fitting • results • comment

  22. Results Operators

  23. Results

  24. Results • FOR OPERATORS: • Personal characteristics have a significant impact on off-farm labour participation • The same is true for farm characteristics and labour market characteristics • Household characteristics do not significantly affect operators’ choices

  25. Results Spouses

  26. Results Spouses

  27. Results • FOR SPOUSES: • Among personal characteristics, only education has a significant impact on off-farm labour participation • Household characteristics, particularly small children, significantly affect spouses’ choices • Farm characteristics have no influence • Among labour market characteristics, only low-wage manufacturing employment increases the probability of off-farm work

  28. Results • Further results can be drawn from more sophisticated econometric methods by using data from both surveys • Farmers and spouses who choose an off-farm work in the pastare more likely to make the same choice in the following • For farmers, this is most likely because when they started an off-farm work they modified the farm, so that it is not easy to come back • For spouses, this is most likely because they accumulated work experience, and hence, have higher market wages.

  29. Conclusions • This is an example of how econometric methods can be used to assess empirical questions • The results are consistent with the theory, but more detail has been gained • It is possible to make predictions of what will happen if some explanatory variable will change • It is possible to detail these effects for farmers and spouses (who exhibit different behaviour), for small and large farms, etc.

  30. THANK YOU FOR YOUR ATTENTION!

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