It’s not all about the money: understanding farmers’ labor allocation choices

Abstract

Using a nationally representative survey of farm operators in Ireland, this study examines the effect of non-pecuniary benefits from farm work on labor allocation choices. Results suggest that non-pecuniary benefits affect both the decision to enter the off-farm labor market and also once that decision is made, the amount of time spent working off-farm. We find our derived variable representing non-monetary benefits associated with farm work to have a substantial impact similar to the effect of other more widely reported personal and farm structural variables such as the age of the farm operator, farm size, and farming system. The existence of these non-pecuniary benefits serves to increase the implied wage to farmers for their farm work. This in turn can lead to allocations of labor that would seem suboptimal from a purely financial point of view. Rural development policies aimed at creating off-farm opportunities could fail unless returns to off-farm work are high enough to compensate the farmer for losing the benefits associated with the farming lifestyle. From a methodological perspective, our analysis indicates that failure to model off-farm labor allocation choices as a two-part process may lead to some incorrect conclusions regarding the effect of certain explanatory variables. Outside of explaining farmers’ off-farm labor supply it would be useful to incorporate farmer perceptions regarding the non-pecuniary benefits from farming in economic models of farm behavior across a range of activities as this could lead to much more accurate predictions of farmers’ responses to policy changes.