Returns from income strategies in rural Poland

1. Returns from income strategies in rural Poland Jan Fałkowski Maciej Jakubowski Paweł Strawiński 20 years of transitioninruralareas Dijon, 20-21October 2011

2. Outline • Motivation • Data & methodology • Results • In general: we investigate income returns to various occupations in rural Poland

3. Motivation • Diversificationoutsideagriculture high on the agenda in Poland • Rationalebehind: stabiliseincome & absorbsomesurpluslabour, improveefficiency of resourceallocation • Rural incomeslowerthanurban (~80%) • However: • Diversificationprocessslowerthanexpected • Theoreticalargumentsquestioningbenefits of nudgingfarmers to diversify • Since 2005 farmers’ incomeaboveruralaverage

4. Farm vs. rural monthly disposable income in Poland

5. Literature review • Fourstrands of relevance • Impact of non-farm income on totalhhincome • fewstudies for CEECs; in general ambigousconclusions (Reardon, 1997; Rozelle et al., 1999; Hazer & Haggblade, 1990; Reardon, 2000; Deininger & Olinto, 2001) • Factors dis/encouragingoff-farmemployment • Mixedconclusions for transitioncountries, for Poland diversificationnegativelycorrelatedwiththeunearnedincome, remotelocalisation and specialisationinagric. (Chaplin et al. 2004) • Mostlybinomialmodels(ignoringthewholeheterogeneity of occupationalchoices) • Focused on determinants not on outcomes

6. Literature review (cont.) • Off-farmlaboursupply of farmers (Huffman, 1980; Kimhi, 2000) • Evidence on CEECsscarce (Goodwin & Holt 2002; Juvancic & Erjaves, 2005) • Conclusionsquiteunanimous: crucialimportance of personalcharacteristics and householdattributes • Agric. labouradjustmentsduringtransition • Heterogeneity of labouradjustmentpatterns (Swinnen et al. 2005) • In Poland: regionaldifferentiation (Dries & Swinnen, 2002) • No micro-foundations

7. Motivation cont. • Impact of diversification on income ambigous • There have been some work on barriers to diversification but: • Hardly any attempts to compare returns to various income strategies • There have been some work to identify labour adjustments in rural areas but: • Hardly any attempts to explain them with micro data

8. Research questions • How have the returns to various income strategies in rural Poland compared to each other during transition period? • How has this comparison changed with the accession to the EU? • Practicalreasons to knowtheanswers: • To betterunderstandthesituation of 38% of Poland’spopulation • To evaluatetherationale for govt. programmesencouragingfarmers to diversify • To informthediscussionaboutthenew Rural dev. policybothin Poland and inthe EU

9. Data • Household Budget Surveys covering the period 1998-2008 • Important part of thetransition • Includingpre- and post-accessionperiods • Possible to analysetheimpact of CAP bothinabsolute and relativeterms • ~10.000 obs. eachyear (onlyruralhh) • Detailed data on incomes & expenditures • A drawback: impossible to distinguishbetweendifferentagric. enterprises • Not possible to use panel-data techniques

10. Data cont. • We classifyhouseholdsaccording to theirmainsource of income • We distinguishbetween: • Self-employed (outsideagriculture) • Off-farm (solely on hiredoff-farm) • Farmers (solely on farming) • Diversifiedhh (combining farm and off-farmincome) • Unearnedincome (pensions + allowances)

11. Methodology • Problem: people might self-select into different occupations • Solution: we use propensity score matching • We compare households that are similar to each other in terms of observable characteristics but earn their living from different income sources

12. Results • To assurerepresentativeness of theresults, differencesinincomesadjusted by householdprobabilitysurveyweights • To control for potentialoutliers we trimmedthesampleexcluding 1% of obs. (up & down) • Drawing on theliterature, propensityscorebased on: • Hosueholds’ human capital; demographiccomposition; regionaldummies

13. Earning premium for rural households relying solely on farming in comparison to other income strategies (1998 to 2008, in PLN per capita).

14. Earning premium for diversifying households (combining farming with off-farm employment) in comparison to other income strategies (1998 to 2008, in PLN per capita).

15. Results (cont.) • We repeat this exercise but with expenditures (not incomes) => results are the same • We further investigate the role of unearned income & human capital

16. Unearned income

17. Human capital • for households with relatively high human capital endowments off-farm employment seems a financially attractive possibility to farming (no stat. significant difference) • any other strategy that relies on government transfers or on mixing of farm and off-farm income sources is far less beneficial

18. Human capital (cont.) • For medium educational level, • diversification still provides smaller remuneration than farming and off-farm • Since 2004, off-farm is also worse than farming • For lowest educational level, • Until 2004 diversification and off-farm provide similar returns as farming • Since 2004, farming is certainly the most profitable

19. Results (cont.) • We further investigate the role of land resources and land and human resources together • On average farming provided higher remuneration than diversification, • this difference is quantitatively small and statistically insignificant for households with lowest education level and little land assets

20. Concluding remarks • Over the period 1998-2008 farmers lacked financial incentives to (partly) quit from agriculture • 2004 provides an important dividing line: following this year farmers’ incomes improved both in absolute and relative terms