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Real Options Approach to Inter-Sectoral Migration of U.S. Farm Labor

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  • Gülcan Önel
  • Barry K. Goodwin

Abstract

The core of the literature on inter-sectoral labor migration is based on net present value models of investment in which individuals are assumed to migrate to take advantage of positive wage differentials. In this article, we argue that a real options approach, taken together with the adjustment costs associated with sectoral relocation, may provide a basis for explaining the migration of farm labor out of the agricultural sector. Given the irreversibility of migration decisions and uncertainty in the economy, potential migrants might choose to postpone migration, even in the face of positive wage differentials. Using annual U.S. employment data from between 1948 and 2009, our results indicate that large elasticities between economic incentives and out-farm migration are observed after a high threshold of wage differentials between farm and off-farm sectors is surpassed.

Suggested Citation

  • Gülcan Önel & Barry K. Goodwin, 2014. "Real Options Approach to Inter-Sectoral Migration of U.S. Farm Labor," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(4), pages 1198-1219.
    • Handle: RePEc:oup:ajagec:v:96:y:2014:i:4:p:1198-1219.
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    File URL: http://hdl.handle.net/10.1093/ajae/aau004
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    Cited by:

    1. A. Ford Ramsey & Tadashi Sonoda & Minkyong Ko, 2023. "Intersectoral labor migration and agriculture in the United States and Japan," Agricultural Economics, International Association of Agricultural Economists, vol. 54(3), pages 364-381, May.
    2. Ramsey, A. Ford & Sonoda, Tadashi & Ko, Minkyong, 2021. "Aggregation and Threshold Models of Intersectoral Labor Migration: Evidence from the United States and Japan," 2021 Conference, August 17-31, 2021, Virtual 315110, International Association of Agricultural Economists.
    3. Clark Lundberg & Ryan Abman, 2022. "Maize price volatility and deforestation," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(2), pages 693-716, March.
    4. Tayebi, Zahra & Onel, Gulcan, 2017. "Revisiting the Neoclassical Model of Out-farm Migration: Evidence from Nonlinear Panel Time Series Data," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259131, Agricultural and Applied Economics Association.

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