Regional Differences in Per Capita Farm and Nonfarm Income

Establishment of parity prices by way of the unit of purchasing power approach—the concept on which, the parity formula is now based—may not adequately reflect parity of incomes and living standards for farmers. This is true especially if the norm or base period is far back in the past, and if radical changes have occurred in the demand for, and the cost structures of, many farm commodities. Recognition of such limitations has led to a second general approach to the measurement of parity—a formula that involves parity income, with prices derived from this formula. The income approach received Corgressional recognition, and resulted in a definition of parity income in the Soil Conservation and Domestic Allotment Act of 1936, revised in the Agricultural Act of 1938. Later, it was replaced with a definition in the Agricultural Act of 1948 that was substantially different. This parity concept centers generally on the relation between the incomes of farm people and those of nonfarm people. In the measurement of such parity two basic approaches have been used. One involves the maintenance of a historical income ratio that would provide farmers with incomes and living standards proportionate to those of nonfarmers; the other would establish the standard of equal incomes or living standards as between farmers and nonfarmers. In the first approach, the ratio of farm to non,f arm income in recent years has been at parity or above, compared with the historical base of 1910-14. The second approach, on the other hand, yields a very substantial differential as between farm and nonfarm incomes, although differences in the purchasing power of the farm dollar versus the nonfarm dollar would probably narrow the gap appreciably. This paper bears on the second of these approaches, that is, the comparison of income differences, especially with respect to the regional variations between the incomes of farm-operator families and those of the nonfarm population.