Off- Farm Labor Supply of Farm- Families in Rural Georgia

1. Off- Farm Labor Supply of Farm- Families in Rural Georgia Dr. Ayal Kimhi Ofir Hoyman Tbilisi, 2005

2. Research Goals Estimating the factors affecting the labor supply of Georgian family members off- farm by focusing on: 1. Personal characteristics. 2. Farm characteristics. 3. Having official document owning the land.

3. 4. Financial risk in farm work. 5. Efficiency in managing the farm. 6. Wage from off- farm- work. 7. Other incomes (not from work).

4. The Conceptual Model • The family members decide • simultaneously on consumption and • leisure together with farm production • and time allocation to farm and off- • farm for each family member. • The farm family maximizes utility under • time constraint; budget constraint and • a farm production function.

5. The internal solution: each family • member equates his marginal value • of time in farm work, leisure and off- • farm work. • A member of the farm family will not • participate in the local labor market if • the wage he could earn is lower than • the marginal value of his work on the • farm at zero off- farm work hours.

6. The Empirical Model • The assumption is that wage and off- • farm labor supply are endogenous • variables that are determined • simultaneously. • The estimation is a four-step procedure • and based on the Sample Selection • Model.

7. Estimating the participation equation • and deriving predicted Inverse Mill’s • Ratio; (B) Estimating the reduced-form labor supply equation and deriving predicted off- farm work days;

8. (C) Estimating the wage equation after substituting predicted off-farm work days and deriving predicted wage; (D) Estimating the structural labor supply function after substituting predicted wage.

9. Data • The data used were collected by the • Individual Farm Owners’ Survey carried • out on 2003 in four rural districts of • Georgia: Dusheti, Mtskheta, Sagarejo, • and Gardabani. • The survey included 2,520 individual • farms; 630 farms from each district.

10. There are 7,090 individuals in the • sample older than 14. • 1,577 (22%) individuals are working • off the farm.

13. Descriptive Statistics- Averages of Main Variables

14. Results

16. Conclusions • Farmers use the off-farm labor • market to supplement farm income. • Off-farm income compensates • farmers for the income risk they • face in farming.

17. The results indicate that off-farm • labor market is in the early stages of • development: • the returns to human capital seem to be nonexistent relative to the returns to physical strength.

18. wages in part-time (temporary or seasonal) off-farm work surpass the wages in full-time jobs. • the opportunities for females are much lower than those for males.

19. The off-farm labor decisions are • sensitive to the situation in the land • market:

20. possession of a land document decreases off-farm labor participation, indicating that a land document increases farmers’ confidence in their ability to make a living out of farming and therefore reduce their tendency to seek alternative income sources.

21. the farm efficiency has a negative effect on the probability of working off the farm, but has a positive effect on days of work off the farm. This could indicate that farmers have difficulties expanding their farming operation.

22. the difficulties to expand farm operation can be a consequence of constraints on land transactions, credit rationing, or other constraints.

23. Thank you for listening