The rural–urban income divide among farm households: the role of off-farm work and farm size

Abstract

PurposeThe determinants of income of rural and urban farm households, with emphasis on the role of off-farm employment by farm household members and of farm size, are examined using data from the 2016 Agricultural Resource Management Survey (ARMS) and quantile regression procedure. The implemented quantile regression technique is extended to allow for the decomposition of the income gap between the two groups of farm households. Findings indicate, regardless of the location of the farm, a positive and significant impact of a previous year's participation in off-farm work by household members on the distribution of current household income. Having operated a larger-sized farm in the previous year is shown with a similar effect in the upper range of the income distribution for urban households and with a comparable impact but across the whole income distribution for rural farm households.Design/methodology/approachData from the 2016 ARMS are used in conjunction with quantile regression in order for decomposition of the income gap between the two groups of farm households.FindingsFindings show that urban farm households who in a previous year have participated in off-farm work and operated larger-sized farms tend to earn higher incomes. Results further indicate higher rates of return to education for “urban” farm households in comparison to “rural” farm households, particularly for those with a college education and beyond who are at the lower portion of the income distribution.Research limitations/implicationsTo the extent that the ARMS is an annual cross-sectional data, the temporal impacts of factors that potentially may influence the incomes of farm households in urban and rural areas cannot be measured.Practical implicationsFindings from this research indirectly support previous published research where higher earnings by urban US population were documented in comparison to rural population and where earnings tend to rise as a result of participation in off-farm work and in expanding the size of the farming operation; this is in addition to the procurement of higher education.Social implicationsThe results of a higher rate of return to education for “urban” farm households in comparison to “rural” farm households have important policy implications for policymakers.Originality/valueThis is the first paper in the agricultural economic literature that implements a method of assessing the rural–urban divide across all of the quantiles of income distribution.