Off-farm labor supply responses to permanent and transitory farm income

A sample of Iowa farm couples is used to evaluate whether off‐farm labor supply decisions respond to permanent and transitory components of farm income. Off‐farm labor supply of both spouses declines in response to increases in permanent farm income. Farm wives also reduce off‐farm labor supply in response to positive transitory farm income shocks. Consequently, one mechanism farm households use to smooth their goods consumption when facing fluctuating farm income is to modify their consumption of leisure. Ability to smooth goods consumption does not imply the absence of liquidity constraints among farm households unless leisure consumption is also smoothed.     

Intertemporal analysis of employment decisions on agricultural holdings in Slovenia

The article attempts to quantify determinants influencing the dynamics of employment decisions on agricultural holdings in Slovenia and to test specific aspects of labor reallocation during the transition period by the application of an agricultural household model. Through the use of a 1991–2000 longitudinal data set for 22,055 farm households, quantitative analysis of intertemporal employment decisions by farm holders is carried out using probit techniques. The determinants tested relate to the personal characteristics of farm holders (gender, age, education level, and potential off‐farm income), household characteristics (size, structure), characteristics of the agricultural holding (economic size, labor intensity), and local labor market conditions. The model results generally confirm existing empirical evidence on asymmetrical and irreversible participation of holders on the labor market. Despite intensive restructuring of agriculture and profound changes in the nonfarm labor market in the analyzed period, labor supply of farm holders remains rigid. The mobility of labor supply is lower than expected, which can be attributed to the importance of structural problems constraining intersectoral mobility. Low labor mobility reduces the efficiency of labor allocation on agricultural holdings in Slovenia. Elements of this problem emerge on both supply (e.g., low level of educational and professional attainment of reference persons) and demand sides of the labor market (e.g., unfavorable local labor market conditions). A marked tendency toward maintaining the same employment status is more distinct in the case of holders employed on‐farm only.     

Market imperfections,liquidity, and farm household labor allocation: the case of rural South Africa

Asset endowments and market imperfections shape households’ labor allocation decisions and lead to different production regimes within rural farm households in South Africa. This article uses a farm household model to explain the presence of three main household groups determined on the basis of the labor regime adopted: small peasants (working both on and off farm), self‐cultivators (autarkic in labor) and hiring‐in households. A partial generalized ordered logit is used to test the main predictions of the model and a Brant test on threshold constancy is performed to identify the household‐specific factors affecting labor market participation. The results show that liquidity constraints and market imperfections matter in the choice of the labor strategy adopted. Liquidity‐constrained households are more likely to sell labor off farm while access to information facilitates the hiring in of workers.     

Gender,control, and crop choice in northern Mozambique

Women play an important role in the agricultural production process in developing countries, yet their role in making decisions about what to grow and implications for household welfare remains poorly understood. In this article, I study women's empowerment in northern Mozambique as it relates to agriculture, considering in particular the factors associated with women managing the plots that they nominally control. Women control about 30% of the plots in the data, but only manage about 70% of those plots. Using a unique panel data set, I find that women are more likely to manage plots when households have had historic access to off‐farm labor, typically completed by men. When women manage plots, they tend to grow crops with less complicated production techniques and are less likely to grow the main area cash crop. However, conditional on historic access to off‐farm labor their farm incomes are the same as among men.     

Transition and agricultural labor

Reforms have strongly affected agricultural employment in transition countries but in remarkably different ways. We present a theoretical model and an empirical analysis to explain differences in labor adjustment during transition. We show that the differences are due to a combination of variations in initial conditions and differences in reform policies and effects. The removal of price distortions and subsidies caused wage and price adjustments during transition and a reduction in labor demand in agriculture. Surplus labor outflow from agriculture was further stimulated by the privatization of the farm assets as they improve incentives and remove constraints for optimal factor allocation and structural adjustment. The shift to individual farms, which was especially strong in labor‐intensive production systems with low labor productivity in agriculture, has reduced the outflow of labor from agriculture by improving farm governance and labor efficiency, although this effect was mitigated by losses in scale economies due to disruptions and market imperfections in transition. In general, labor outflow was considerably lower on individual farms than on corporate farms, due to a combination of factors related to human capital, access to finance, and physical capital. In the last section of the article we present a general framework for understanding labor adjustments in transition countries. Specifically, we show that there are several patterns of labor transition. In one pattern, followed by, e.g., the Czech Republic and Hungary, there is initially a strong survival of the restructured large‐scale corporate farms that have laid off many workers. In the second phase of transition, gradually the importance of individual farms increases. In other countries, such as Romania, the opposite has happened. In these countries there is an immediate strong shift to individual farms, while labor use increases on average in agriculture. After this initial phase, the shift to individual farms continues, albeit more slowly, and labor use in agriculture starts to decline. Finally, our analysis shows that in countries such as Russia and Ukraine much of the surplus labor is still employed by little‐reformed former collective and state farms. Major adjustments await more progress in agricultural and general reforms.     

Smallholder participation in vegetable exports and age‐disaggregated labor allocation in Northern Tanzania

Modern agricultural supply chains have been playing an increasingly important role in developing countries and have had significant effects on rural labor markets. This article analyses the effects of smallholder farmer participation in export vegetable supply chains in Northern Tanzania on both household hired labor demand and off‐farm labor supply, using an age‐disaggregated approach. In our sample, neither separability nor exogeneity of smallholder farmer participation in export supply chains can be rejected. Hence, we apply lognormal double‐hurdle models and find that participation in export supply chains positively affects households’ decision to hire labor from all age groups. We also find that it increases the unconditional overall level of hired labor demand, while the age‐disaggregated analysis shows that these effects mostly benefit rural youth. However, our sample does not allow us to establish statistically significant evidence of an effect on household off‐farm labor supply although the point estimates point to nonnegligible positive effect sizes.     

Effect of off‐farm income on smallholder commercialization: panel evidence from rural households in Ethiopia

This article investigates how off‐farm income affects crop output market participation decisions and marketed surplus of smallholder farmers in Ethiopia. A double‐hurdle model is estimated using three waves of panel data from the Ethiopian Rural Household Survey. Unobserved heterogeneity is controlled for using a correlated random effect procedure and potential endogeneity of explanatory variables using a control function approach. The results show that off‐farm income has no significant influence on household crop output market participation. However, conditional on market participation, additional off‐farm earnings negatively affect the marketed surplus. This indicates that farmers use off‐farm earnings for consumption rather than for investment in agricultural production. Policy measures that promote rural investment may help increase returns to labor for land‐poor households participating in off‐farm work in the process of agricultural commercialization.     

The impact of migration on rural poverty and inequality: a case study in China

Large numbers of agricultural labor moved from the countryside to cities after the economic reforms in China. Migration and remittances play an important role in transforming the structure of rural household income. This article examines the impact of rural‐to‐urban migration on rural poverty and inequality in a mountainous area of Hubei province using the data of a 2002 household survey. Since migration income is a potential substitute for farm income, we present counterfactual scenarios of what rural income, poverty, and inequality would have been in the absence of migration. Our results show that, by providing alternatives to households with lower marginal labor productivity in agriculture, migration leads to an increase in rural income. In contrast to many studies that suggest that the increasing share of nonfarm income in total income widens inequality, this article offers support for the hypothesis that migration tends to have egalitarian effects on rural income for three reasons: (1) migration is rational self‐selection—farmers with higher expected return in agricultural activities and/or in local nonfarm activities choose to remain in the countryside while those with higher expected return in urban nonfarm sectors migrate; (2) households facing binding constraints of land supply are more likely to migrate; (3) poorer households benefit disproportionately from migration.     

How does land fragmentation affect off‐farm labor supply: panel data evidence from China

This article provides a deeper theoretical understanding of the linkages between land fragmentation and off‐farm labor supply in China, and investigates this relationship empirically in a more direct way than does the existing literature. Drawing upon a rural household panel data set collected in Zhejiang, Hubei, and Yunnan Provinces from 1995 to 2002, we estimate the effects in two steps. First, we estimate the effect of land fragmentation on labor productivity. Second, we estimate the effect of land fragmentation on off‐farm labor supply. The production function results show that land fragmentation indeed leads to lower agricultural labor productivity, implying that land consolidation will make on‐farm work more attractive and thus decrease off‐farm labor supply. However, the effect of land consolidation on off‐farm labor supply is not significant. One likely explanation for this result may be the potentially imperfect labor markets.     

Testing Asset Dynamics for Poverty Traps in Rural China

This paper quantifies the link between agricultural income, caloric intake, and asset‐based poverty in rural China. The analysis employs data from the China Health and Nutrition Survey including 1,279 households in eight survey years. The balanced data models are then estimated to reveal the role that various shocks (e.g., prices and climate/weather) play in determining the asset dynamics between different income groups using four different asset indexes which cover comprehensive, fixed, productive, and consumable assets. To capture absolute asset dynamics, a fourth‐degree polynomial function was used in a three‐stage least squares system made up of an asset index, caloric intake, and farm income. The empirical results do not show evidence of a poverty trap based on multiple equilibriums.     

Livelihood diversification strategies in the Himalayas*

This article examines livelihood diversification strategies of rural households using survey data from the Himalayas. We present and explore an analytical framework that yields different activity choices as optimal solutions to a simple utility maximization problem. By classifying the range of activities of rural households into a few distinct categories based on their profitability and by considering portfolios of farm and non‐farm activities, we provide novel insights into diversification behaviour of rural households. The evidence shows that while the poor are mainly agricultural labourers and work in the low‐return non‐farm sector, the better‐off diversify in high‐return non‐farm activities. As expected, we find strong evidence that education plays a major role in accessing more remunerative non‐farm employment. A somewhat less intuitive finding is that larger household size is associated with higher probability of diversification into the high‐return non‐farm sector. The finding that the farm size is not a constraint to diversification in lucrative non‐farm employment is also surprising. Geographical location plays a role in diversification behaviour of rural households indicating the importance of local context.     

Do rainfall conditions push or pull rural migrants: evidence from Malawi

This article uses nationally representative data from Malawi's 2004/05 Integrated Household Survey (IHS2) to examine whether rainfall conditions influence a rural worker's decision to make a long‐term move to an urban or another rural area. Results of a Full Information Maximum Likelihood regression model reveal that (1) rainfall shocks have a negative association with rural out‐migration, (2) migrants choose to move to communities where rainfall variability and drought probability are lower, and (3) rainfall shocks have larger negative effects on the consumption of recent migrants than on the consumption of long‐time residents.     

Off‐Farm Work,Intensity of Government Payments,and Farm Exits: Evidence from a National Survey in the United States

The last three decades have witnessed the continued exit of households from primary agriculture in the United States, where the average annual gross exit rate has averaged 10% per year. Understanding exit behavior is one key to future farm structure, management of abandoned land, depopulation of rural areas, and agricultural policy, including government program payments. This study empirically estimates the determinants of exit decisions of farm households. Particular attention is given to the roles of intensity of government payments and off‐farm work decisions of farm couples in the exit decision. Using a large farm‐level survey and controlling for endogeneity, results indicate that farm households with reduced intensity of government payments are more likely to exit farming. Households where the operator spouse works off the farm are more likely to exit farming. Additionally, households with older farmers, with the farm operator and spouse raised on a farm, and households operating farms located in Northern Great Plains are more likely to exit farming.     

Impact of off‐farm income on food expenditures in rural Bangladesh: an unconditional quantile regression approach

This study examines the effects of off‐farm income on food expenditures of rural Bangladeshi households. Our analysis yields unbiased estimates of the unconditional impact of off‐farm income on food expenditures and reveals the heterogeneous effects that occur across the distribution of total food consumption expenditures. The findings suggest that the impacts of off‐farm income are uniformly positive across the unconditional quantile regression and significantly increase food consumption expenditures for all quantiles, except for the 25th quantile. In addition, we found that schooling, experience, and location of the household increase the food expenditures of rural households. Most importantly, this article argues that female‐headed rural households in which the female works off the farm tend to have significantly lower food expenditures.     

Is off-farm income reforming the farm? Evidence from Mexico

Does access to off-farm income complement or compete with agricultural production? This article explores the effect of off-farm income on agricultural production activities, using data from the 2003 Mexico National Rural Household Survey. We first discuss the theoretical conditions under which access to off-farm income may influence production in an agricultural household model. Instrumental-variable (IV) estimation methods are then used to test whether agricultural production activities, technologies, and input use differ between households with and without access to off-farm income. We find that off-farm income has a negative effect on agricultural output and the use of family labor on the farm, but a positive impact on the demand for purchased inputs. There is also a slight efficiency gain in households with access to off-farm income. Findings offer insights into how household production evolves as rural households increasingly engage in off-farm income activities.     

Off‐farm Employment and Input Intensification among Smallholder Maize Farmers in Kenya

We derive input demand functions for fertiliser and hybrid seed, testing for the combined and separate effects of income from non‐farm sources and agricultural wage labour among smallholder maize farmers in Kenya. More income from off‐farm sources, and specifically non‐farm sources, competes with maize intensification, particularly in more productive areas where use rates are higher. In less productive areas, where households rely more on off‐farm income and input use in maize is extremely low, agricultural wage labour reduces the likelihood that fertiliser is applied, but when used, has a positive effect on quantities purchased of both seed and fertiliser.     

Welfare implications of reduced government subsidies to farm families: accounting for fringe benefits

In the past three decades, farm families have relied on government payments and off‐farm income to reduce income risk and increase total household income. Studies have shown that, as the income effect dominates, government payments tend to reduce off‐farm labor of farm operators and spouses. But that may not be true if one accounts for fringe benefits associated with off‐farm employment. Additionally, with looming budget deficits and the possibility of a reduction in decoupled government payments, farm families may be facing an altered economic environment. Our study addresses this issue by examining the links between government farm program payments and the ever‐important role of fringe benefits in the off‐farm employment of farm couples. Results from farm‐level data actually show that the marginal effect of government payments on hours worked off‐farm will decrease in magnitude when accounting for fringe benefits, ceteris paribus. These results support the notion that farm households’ welfare loss stemming from reduced decoupled payments may be overstated when models exclude fringe benefits from the estimation of off‐farm labor supply.     

Off‐farm work,land tenancy contracts and investment in soil conservation measures in rural Pakistan

This study examines the impacts of participation in off‐farm work and land tenancy contracts on the intensity of investment in soil‐improving measures and farm productivity. A multivariate Tobit model that accounts for potential endogeneity between the intensity of investment and the off‐farm work and tenancy contract variables is estimated for 341 rural households in Punjab province of Pakistan. An instrumental variable approach is also used to analyse the impact of tenancy contract and off‐farm work on farm productivity. The empirical results show that participation in off‐farm work and tenure security tends to increase the intensity of investment in long‐term soil‐improving measures. We also find that increases in off‐farm work and tenure security exert significant and positive effects on farm productivity.     

Gender differentials in farming efficiency and profits: The case of rice production in the Philippines

Women make essential contributions to the agricultural and rural economies in all developing countries. Rural women are involved in a variety of production and farm management activities. In the Philippines women engage more intensively in agricultural work than men. However, Filipino women’s actual contribution to food production and the rural economy remains undervalued, if not invisible. Using the average treatment effect and farm-level data from the Philippines, this study investigates the effect of gender on farming efficiency, profits, and costs of rice production. Results indicate that female-headed farm households, despite having limited access to land, have higher values of rice production than their male counterparts. However, female-headed households have higher fixed, seed and labor input costs, consequently earning lower profits. In addition, female-headed farm households have lower irrigation costs. Findings from this study also indicate that women are less efficient in farming, but are more likely to adopt improved seed varieties.     

Food versus fuel: examining tradeoffs in the allocation of biomass energy sources to domestic and productive uses in Ethiopia

Rural households in Ethiopia have limited options to meet their domestic energy needs because they lack access to modern fuels and technologies. Domestic use of certain fuel sources, such as cow dung, can hinder agricultural outcomes and productivity. This article explores the tradeoffs between domestic and productive uses of biomass energy sources in the Nile Basin of Ethiopia using a nonseparable farm household model where labor allocation to energy collection and farming are analyzed simultaneously. We estimate a system of five structural equations using three‐stage least squares and find that the use of dung as a domestic fuel source has negative implications for the value of harvested crops, while use of on‐farm fuelwood is associated with increased value of agricultural output. On‐farm production of fuelwood appears to increase the value of crop output and provide labor savings, by making fuelwood collection more convenient for households. Policy interventions to support the expansion of agroforestry and increase access to new energy‐efficient technologies are needed to ensure that agricultural productivity can be both increased and sustained.