THE IMPORTANCE OF INCOME RISK IN LABOR ALLOCATION DECISIONS

Nigel Key, Michael Roberts and Erik O'Donoghue

No 22175, 2003 Annual meeting, July 27-30, Montreal, Canada from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: Previous research has found that on-farm income variability helps determine off-farm labor supply. However, unobserved heterogeneity of farms or regions may have biased earlier results. In this study, we use an exogenous increase in Federal crop insurance subsidies as a natural experiment to identify the importance of risk in off-farm labor supply. The subsidy increases induced greater participation in crop insurance programs and thereby reduced farmers' financial risks. By merging county-level crop insurance participation data with farm-level Agricultural Census data from 1992 and 1997 we can compare the off-farm labor decisions of individual farms before and after the subsidy and thereby control for unobserved heterogeneity. Unlike previous studies, we find that on-farm risk does not affect the labor allocation decisions of farm households.

Keywords: Labor; and; Human; Capital (search for similar items in EconPapers)
Pages: 20
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea03:22175

DOI: 10.22004/ag.econ.22175

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