An econometric analysis of family labor supply decisions and household incomes: U.S. rural farm and nonfarm households, 1978-82

The objectives of this study are (1) to develop a general model of farm and rural nonfarm household behavior that explains how labor supply and labor participation decisions are made by rural married couple households, and (2) to develop econometric models of labor demand, labor supply, labor participation and household income for rural nonfarm households and of off-farm labor participation and household income for farm households;The econometric models are fitted to micro data sets on households obtained by combining together household and individual data in the Current Population Survey for 1978, 1979, 1981, and 1982. These variables on households are augmented by state-level labor market and farm-profitability variables matched to households by state of residence;The work-not work decisions of husbands and wives are modeled jointly in a household decision-making context. The bivariate analysis of their wage labor participation decisions takes into account the correlation of disturbance terms across husband's and wife's participation equations. The cross equation correlation was found to be statistically significant and positive for both types of households but to be larger for husbands and wives in farm households. Predicted probabilities from the bivariate labor participation equations were used to construct estimates of sample selection terms for the labor demand and labor supply equations of the rural nonfarm husbands and wives;For rural nonfarm households, schooling, experience and local labor market variables, especially the unemployment rate, state average manufacturing wages, and the change in the percentage of service jobs, are shown to have significant effects on labor participation decisions and household incomes. For farm households, schooling, experience and local climatic conditions have significant effects on the probability of wage work participation of couples and household income. Local labor market variables and indicators of farm profitability had relatively weak effects on off-farm work participation and farm household incomes. Estimated rates of return to husbands' and wives' education are higher for rural nonfarm households than for farm households, and the return on husbands' and wives' schooling (effect on household income) are not significantly different.