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Off-Farm Labor Supply Responses to Permanent and Transitory Farm Income

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  • Kwon, Chul-Woo
  • Orazem, Peter
  • Otto, Daniel

Abstract

A sample of Iowa farm couples is used to evaluate whether off-farm labor supply decisions respond to permanent and transitory components of farm income. Off-farm labor supply of both spouses declines in response to increases in permanent farm income. Farm wives also reduce off-farm labor supply in response to positive transitory farm income shocks. Consequently, one mechanism farm households use to smooth their goods consumption when facing fluctuating farm income is to modify their consumption of leisure. Ability to smooth goods consumption does not imply the absence of liquidity constraints among farm households unless leisure consumption is also smoothed. Key Words: Frisch equations, off-farm labor, farm income, transitory shocks, permanent shocks

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10643.

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Date of creation: 18 Jul 2003
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Publication status: Published in Agricultural Economics, January 2006, vol. 34 no. 1, pp. 59-68
Handle: RePEc:isu:genres:10643

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
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Web page: http://www.econ.iastate.edu
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  1. Skoufias, Emmanual & Parker, Susan W., 2002. "Labor market shocks and their impacts on work and schooling," FCND discussion papers 129, International Food Policy Research Institute (IFPRI).
  2. Ashok K. Mishra & Barry K. Goodwin, 1997. "Farm Income Variability and the Supply of Off-Farm Labor," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 880-887.
  3. Hanan G. Jacoby & Emmanuel Skoufias, 1998. "Testing Theories of Consumption Behavior Using Information on Aggregate Shocks: Income Seasonality and Rainfall in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 1-14.
  4. Joseph G. Altonji & Aloysius Siow, 1986. "Testing the Response of Consumption to Income Changes with (Noisy) PanelData," NBER Working Papers 2012, National Bureau of Economic Research, Inc.
  5. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  6. Ralph Bierlen & Allen M. Featherstone, 1998. "Fundamental q, Cash Flow, and Investment: Evidence from Farm Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 427-435, August.
  7. Lass, Daniel A. & Findeis, Jill L. & Hallberg, Milton C., 1989. "Off-Farm Employment Decisions By Massachusetts Farm Households," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 18(2), October.
  8. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  9. Peter J. Barry, 1998. "Credit Constraints, Farm Characteristics, and the Farm Economy: Differential Impacts on Feeder Cattle and Beef Cow Inventories," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 708-723.
  10. Bierlen, Ralph W. & Ahrendsen, Bruce L. & Dixon, Bruce L., 1998. "Impacts Of Financial Characteristics And The Boom-Bust Cycle On The Farm Inventory-Cash Flow Relationship," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 30(02), December.
  11. Huffman, Wallace E., 1991. "Agricultural Household Models: Survey and Critique," Staff General Research Papers 11008, Iowa State University, Department of Economics.
  12. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, vol. 82(1), pages 15-33, March.
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Cited by:
  1. Laure Latruffe & Stefan Mann, 2009. "Another look at the distribution of direct payments: The link with part-time farming," Working Papers SMART - LERECO 09-02, INRA UMR SMART.
  2. Laure Latruffe & Aurélia Dupuy & Yann Desjeux, 2012. "What would farmers’ strategies be in a no-CAP situation? An illustration from France," Working Papers SMART - LERECO 12-02, INRA UMR SMART.
  3. Foltz, Jeremy D. & Aldana, Ursula, 2006. "Off-Farm Work and On-Farm Investment," 2006 Annual meeting, July 23-26, Long Beach, CA 21185, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. Zhao, Jianmei & Zhang, Jun, 2012. "Credit Constraint and Non-separable Behavior of Rural Households — Evidence from China," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 123950, Agricultural and Applied Economics Association.
  5. Chang, Hung-Hao & Yen, Steven T., 2009. "Off-farm Employment and Food Consumption at Home and away from Home: Evidence from Farm Households in Taiwan," 2009 Conference, August 16-22, 2009, Beijing, China 51362, International Association of Agricultural Economists.
  6. Chang, Yang-Ming & Huang, Biing-Wen & Chen, Yun-Ju, 2012. "Labor supply, income, and welfare of the farm household," Labour Economics, Elsevier, vol. 19(3), pages 427-437.
  7. Shrestha, Sundar S. & Findeis, Jill L., 2005. "Space, Government Payments, and Off-Farm Labor Response of Principal Farm Operators: A County-Level Analysis," 2005 Annual meeting, July 24-27, Providence, RI 19511, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  8. Chang, Hung-Hao & Mishra, Ashok, 2008. "Impact of off-farm labor supply on food expenditures of the farm household," Food Policy, Elsevier, vol. 33(6), pages 657-664, December.

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