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Off-farm labour participation of farmers and spouses

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

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Off-farm labour participation of 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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