Understanding the variation in estimates of off‐farm labour supply elasticities: A meta‐analysis

Abstract

AbstractThe design of rural development policies and government programmes in support of farm operations and farm households relies on precise estimates of off‐farm labour supply elasticities. However, the wide variation in estimates dilutes their power to predict the magnitude of these targeted interventions. We perform a meta‐analysis of estimates of off‐farm labour supply elasticity to identify systematic factors that influence these estimates. A sample of 137 elasticities is obtained from 43 studies which use data ranging from 1960 to 2012. We examine theoretical assumptions, data availability and empirical specifications, and other study‐specific characteristics. Controlling for potential publication bias, we estimate that the elasticity is approximately 0.64 to 0.77. Results of the analysis show that estimates are affected by modelling choices controlling for self‐selection and life‐cycle elements. However, we found no compelling evidence that study‐specific characteristics of off‐farm labour supply functions, including various measurements of labour supply, explain variation in the elasticities.