The discussion in the previous section presented the basic elements of agricultural household model, concentrating on the off-farm work participation decision. The basic model can be extended or modified to accommodate various aspects of the reality. The following three following points are relevant for the analysis of the next chapters.
Non-linear Off-farm Income Function: In the simple model, it is assumed that off-farm wage rate is constant so that off-farm income is a linear function of off-farm work time. In reality, off-farm income may be a more complicated function of work time due to the institutional conditions (for example tax system) or the incentive consideration of employers.
Figure 4-4 Time allocation under restriction on off-farm work time
I*
Io
0 T
T m
−
Th
C
Tm* Tf*
Tf’
A well-known example of the deviations of off-farm income function from the simplistic version is a restriction of maximum off-farm work time that can be imposed by a political regulation or by a collective bargaining. Figure 4-4 shows how a part-time farmer allocates his time if the maximum off-from work time restriction (Tm ≤ T−m ) is binding for him. Without the restriction, his farm and off-farm work time would be Tf* and Tm*, respectively, and the recursivity would hold. If the off-farm work time restriction is binding so that the farmer
cannot realize his originally optimal off-farm work time Tm*, then he increases farm work time by Tf ’. In this case, the economic price of his time is endogenously determined in spite of the positive off-farm work, and it is lower than the off-farm wage (wm). The situation depicted in Figure 4-4 can be considered to be rather restrictive because of the assumption that it is impossible for a farmer to work off-farm longer than a fixed amount of time. As it is theoretically imaginable that the farmer can try to find another off-farm job when he is confronted with such work time restriction in one off-farm job, restrictions on work time can be perhaps better modeled by non-linear off-farm income function. Chapter 5 considers how the implications of the model on the difference of behavior between part-time and full-time farmers are changed by non-linear off-farm income function.
Multiple Persons: A household normally constitutes of more than one person. The one-person model in the previous section does not capture the relationship between the household members. This relationship is the subject of Chapter 6.
Decisions of Agricultural Households in Dynamic Context: The basic model is a static one.
Economic choices made in the present often affect economic constraints and preferences in the future. The dynamic aspect is especially important for understanding how part-time farming influences the process of agricultural structural change. In Chapter 7 the influence of part-time farming in dynamic context will be discussed.
5 Farm Work Patterns of Farmers with and without Off-Farm Work
5.1 Introduction
The purpose of this chapter is to compare the farm work pattern of two different groups of farmers; farmers with off-farm work and farmers without off-farm work.
Previous empirical researches on agricultural labor supply can be divided into two groups.
The first group applies the model of profit maximizing firm to the farm production, usually including the multiple output and input nature of agricultural production into consideration.1 Using the production function formulation or duality formulation of profit function, whose usage has been increasing since 70’s and now is dominant, the first group estimates the agricultural product supply and the factor demand of farms, including labor. As far as labor and its economic price are concerned, the studies usually use the total farm labor input, i.e.
family labor plus hired labor and an average labor wage.
This approach has three potential problems.
First, as mentioned in Chapter 1, in most countries, farms are organized by farm family whose member contributes to the major part of labor input in the farm production. The economics objective of farm family can be better described as utility maximizing than as profit maximizing, where the average labor wage is assumed to be the economic price.
Second, as mentioned also in Chapter 1, although the agricultural profit is the main source of income for many farm families, the significant proportion of workforce farm family is engaged also in off-farm work. The studies in the first group do not analyze this aspect at all.
Third, many studies in the first group do not distinguish between the farm family labor and the hired labor. Possible and widely acknowledged difference between the farm family labor and the hired labor is not considered 2,3.
1 For example, Antle (1984), Ball and Chambers (1982), and Shumway (1983). For German agriculture, Grings (1985). The last one treats labor as a fixed factor.
2 For theoretical consideration on the basis of the transaction cost concept, see Polak (1985) and Schmitt, Schulz-Greve and Lee (1996).
3 Another closely related point is that the average price of labor, no matter how it is defined, can be different from the actual opportunity cost of farm family labor due to the difference in education and training level between the farm family workforce and the other kinds of workforce and that, in the industrialized countries like Germany, there might be considerable differences in opportunity cost even
These problems are consequences of unavoidable and, in most cases, even helpful simplification for the studies in the first group because the purpose of these studies is answer the problems which can be or sometimes must be approached from the aggregate level; e.g. the change in technology or productivity. This aggregate character results in that the possible behavioral differences between part-time farmers and full-time farmers are not analyzed. As we will see, the two groups can be different in the determination of relevant economic price of their time and such difference may cause different farm work behavior.
On the other side, the studies in the second group use utility maximizing agricultural household model where farm production, consumption, and labor supply decision are analyzed simultaneously. Nevertheless, as long as econometric analyses are concerned, they have concentrated on the determinants of off-farm work participation decision, wage function, and off-farm labor hour function.4 Therefore, they answer the question what differences lead to participation or participation but do not answer the question whether participation or non-participation leads to differences in the production behavior and if so, then how. It is, however, important to understand the second type of differences because, in many cases, it is how differently farms with and without off-farm labor supply react to changes in the exogenous factors that makes the distinction between the two types of farms useful for the relevant agricultural political discussion rather than what causes the two different types to exist.
The papers by Lopez ( Lopez (1984a and b)) are important improvements on both groups of studies in some respect. Using the model of utility maximizing agricultural household, which has the farm profit maximizing problem conditioned on the farm family labor in farm, as a subproblem, and assuming that off-farm work and on-farm work have different utility connotations, Lopez distinguishes between the family and hired labor in farm production and integrates the off-farm labor supply as well as the farm labor supply into the analysis. The papers by Lopez share, however, one formal characteristic of the studies in the first group mentioned before in that all farms are assumed to be ‘homogenous’. In his model, all farm families are assumed to have positive off-farm work. This assumption seems to be unavoidable because he uses regionally aggregated data. Consequently, the differences between part-time farmers and full-time farmers are not analyzed.
among the farmers. ( See Schmitt , Schulz-Greve and Lee (1996) for some empirical findings on this point in Germany)
4 For example, various papers of Huffman and others and of Kimhi.
Using the agricultural household model, this chapter analyzes what differences are to be expected and presents empirical findings on the different patterns of on-farm labor supply as an example of these differences. For this purpose, the participation function and the off-farm labor supply function will be simultaneously estimated.