Farm and Off-Farm Work Decisions: The Role of Human Capital

Abstract

W ITH modern economic growth, we observe people reallocating resources in response to changes in economic conditions. How accurately they perceive and efficiently they respond to these changes is attributed to allocative ability (Schultz, 1975). This ability is not restricted to managers of firms. People who supply labor services for hire or who are selfemployed also reallocate their time in response to changes in the value of the work they do. With long-term U.S. economic growth, one major adjustment has been a reallocation of labor between farm and nonfarm labor markets. After 1948, long-term economic forces created prospects of higher incomes in the nonfarm sector. A large proportion of both white and black families quit farming and took nonfarm jobs, causing a massive net exodus of people from farms.' Other farm families have continued to work their farms but have also taken off-farm jobs. Nationally, the percentage of farm operators reporting off-farm work rose from 39% in 1950 to 54% in 1969. Operators working 100 days or more per year off their farms increased from 23% to 40% during the same period (U.S. Department of Commerce, 1973, p. 178). The objective of this paper is to present some econometric evidence of the effect of investments in education and information (agricultural extension) on the off-farm labor supply of farmers.2 The data are county averages per farm for Iowa, North Carolina, and Oklahoma. Important findings are that raising the education level of farmers and increasing the agricultural extension input increase the off-farm labor supply of farmers. This implies that part of the return to education in agriculture arises from its effect on the reallocation of farmers' labor services between farm and nonfarm labor markets. In section I, a labor supply model is developed for household members who face options of having a wage job and a self-employed job. The labor supply decisions are treated as part of a set of joint decisions made by multiple-person farm households on inputs for household consumption and for farm production.3 Section II presents a discussion of the data, the empirical model, and the results from fitting the off-farm labor supply functions. Section III contains further implications, and section IV contains the conclusions.