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Determinants of Farm Labour Use: A Comparison between Ireland and Italy

  • Loughrey, Jason
  • Hennessy,Thia
  • Hanrahan, Kevin
  • Donnellan, Trevor
  • Raimondi, Valentina
  • Olper, Alessandro

This paper examines the effect of the decoupling of farm direct payments upon the off-farm labour supply decisions of farmers in both Ireland and Italy, using panel data from the Farm Business Survey (REA) and FADN database covering the period from 2002 to 2009 to model these decisions. Drawing from the conceptual agricultural household model, the authors hypothesise that the decoupling of direct payments led to an increase in off-farm labour activity despite some competing factors. This hypothesis rests largely upon the argument that the effects of changes in relative wages have dominated other factors. At a micro level, the decoupling-induced decline in the farm wage relative to the non-farm wage ought to have provoked a greater incentive for off-farm labour supply. The main known competing argument is that decoupling introduced a new source of non-labour income i.e. a wealth effect. This may in turn have suppressed or eliminated the likelihood of increased off-farm labour supply for some farmers. For the purposes of comparative analysis, the Italian model utilises the data from the REA database instead of the FADN as the latter has a less than satisfactory coverage of labour issues. Both models are developed at a national level. The paper draws from the literature on female labour supply and uses a sample selection corrected ordinary least squares model to examine both the decisions of off-farm work participation and the decisions regarding the amount of time spent working off-farm. The preliminary results indicate that decoupling has not had a significant impact on off-farm labour supply in the case of Ireland but there appears to be a significantly negative relationship in the Italian case. It still remains the case in both countries that the wealth of the farmer is negatively correlated with the likelihood of off-farm employment.

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Paper provided by Centre for European Policy Studies in its series Factor Markets Working Papers with number 172.

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Length: 17 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:eps:fmwppr:172
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  1. Teresa Serra & Barry K. Goodwin & Allen M. Featherstone, 2005. "Agricultural Policy Reform and Off-farm Labour Decisions," Journal of Agricultural Economics, Wiley Blackwell, vol. 56(2), pages 271-285.
  2. Alessandro Corsi & Cristina Salvioni, 2012. "Off- and on-farm labour participation in Italian farm households," Applied Economics, Taylor & Francis Journals, vol. 44(19), pages 2517-2526, July.
  3. Huffman, Wallace, 1980. "Farm and Off-Farm Work Decisions: The Role of Human Capital," Staff General Research Papers 10973, Iowa State University, Department of Economics.
  4. Thia Hennessy & Mark O’ Brien, 2006. "The Contribution of Off-Farm Income to the Viability of Farming in Ireland," Working Papers 0613, Rural Economy and Development Programme,Teagasc.
  5. Thia C. Hennessy & Tahir Rehman, 2008. "Assessing the Impact of the 'Decoupling' Reform of the Common Agricultural Policy on Irish Farmers' Off-farm Labour Market Participation Decisions," Journal of Agricultural Economics, Wiley Blackwell, vol. 59(1), pages 41-56, 02.
  6. Stephen O'Neill & Kevin Hanrahan, 2012. "Decoupling of agricultural support payments: the impact on land market participation decisions," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 39(4), pages 639-659, September.
  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. Dewbre, Joe & Mishra, Ashok K., 2007. "Impact of Program Payments on Time Allocation and Farm Household Income," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 39(03), December.
  9. Hennessy, David A., 1998. "The Production Effects of Agricultural Income Support Policies Under Uncertainty," Staff General Research Papers 1207, Iowa State University, Department of Economics.
  10. A. Kimhi, 1994. "Participation Of Farm Owners In Farm And Off-Farm Work Including The Option Of Full-Time Off-Farm Work," Journal of Agricultural Economics, Wiley Blackwell, vol. 45(2), pages 232-239.
  11. Tokle, J. G. & Huffman, Wallace, 1991. "Local Economic Conditions and Wage Labor Decisions of Farm and Rural Nonfarm Couples," Staff General Research Papers 10988, Iowa State University, Department of Economics.
  12. J. G. Tokle & Wallace E. Huffman, 1991. "Local Economic Conditions and Wage Labor Decisions of Farm and Rural Nonfarm Couples," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 652-670.
  13. Joe Dewbre, 2006. "The Impact of Coupled and Decoupled Government Subsidies on Off-Farm Labor Participation of U.S. Farm Operators," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 393-408.
  14. 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.
  15. Donnellan, Trevor & Hennessy, Thia C., 2012. "The Labour Allocation Decisions of Farm Households: Defining a theoretical model," Working Papers 137021, Factor Markets, Centre for European Policy Studies.
  16. Kilkenny, Maureen, 1993. "Rural vs. Urban Effects of Terminating Farm Subsidies," Staff General Research Papers 11121, Iowa State University, Department of Economics.
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