JASON LOUGHREY *, THIA HENNESSY *, KEVIN HANRAHAN *, TREVOR DONNELLAN *

VALENTINA RAIMONDI ** AND ALESSANDRO OLPER **

* R U R A L E C O N O M Y A N D D E V E L O P M E N T P R O G R A M M E , T E A G A S C

* * D E P A R T M E N T O F E C O N O M I C S , M A N A G E M E N T A N D Q U A N T I T A T I V E M E T H O D S U N I V E R S I T Y O F M I L A N O

2 013 IATR C SYM POSIU M F ACTOR M AR K ETS SESSION

TU ESD AY JU NE 4 TH 2 013

Determinants of Farm Labour Use: A Comparison between

Ireland and Italy 1

Background

Off-Farm Labour Participation more common among Irish farm operators at 36.3% compared to 23% for Italian farm operators (average from 2002 to 2009) Farmers achieve higher

income and consumption Form of risk

management Recent studies have

focused on contribution of government payments

In the CAP decoupling of 2005, both countries chose the historical model over the regional model

Entitlements based on reference period from 2000 to 2002

Limited change to the distribution of farm income

Farmers required to maintain the land ‘in good agricultural and environmental condition’ and land under permanent pasture

2

Ireland Italy

Teagasc National Farm Survey

Average sample size of 1,184 farms per year (2002-2009)

Unbalanced panel – rate of attrition is very low over eight year period

Provide Irish farm income data to the EU Commission in Brussels (FADN)

Weights based upon system of farming and size of the farm

Provides micro-data on off-farm employment data for the farm holder and spouse where relevant

The Farm Business Survey (REA) carried out by the Italian Institute of Statistics (ISTAT)

Average sample of 3,573 farms per year (2002-2009)

Balanced panel - only farms surveyed for the entire period

Annual sample of agricultural holdings representative of Italian agriculture, stratified by regions, farm types and economic size of holdings.

Database includes household’s composition variables and off-farm employment variables.

Datasets 3

SUMMARY STATISTICS

4

2004 2007

-10 10 30 50 70

Lowest

2

3

4

Highest

Share of Total Farm Family Income

Share of Total Pillar 1 Direct Payments

-10 10 30 50 70

Lowest

2

3

4

Highest

Share of Total Family Farm Income

Share of Total Pillar 1 Direct Payments

Italy - Distribution of Farm Income and Pillar 1 Direct Payments by Income Quintile Based on FADN Data (Severini and Tantori, 2012)

5

2004 2007

-10 10 30 50 70

Lowest

2

3

4

Highest

Share of Total Family Farm Income

Share of Total Pillar 1 Funds

-10 10 30 50 70

Lowest

2

3

4

Highest

Share of Total Family Farm Income

Share of Total Pillar 1 Funds

Ireland - Distribution of Farm Income and Pillar 1 Direct Payments by Income Quintile (Teagasc National Farm Survey)

6

2004 2007

-10 10 30 50 70

Lowest

2

3

4

Highest

Off Farm Participation (Holder %)

Share of Total Family Farm Income

Share of Total Pillar 1 Funds

-10 10 30 50 70

Lowest

2

3

4

Highest

Off Farm Participation (Holder %)

Share of Total Family Farm Income

Share of Total Pillar 1 Funds

Ireland - Distribution of Farm Income and Pillar 1 Direct Payments by Income Quintile (Teagasc National Farm Survey)

7

Outcome Variables 8

ITALY IRELAND

Dependent Variables Off-Farm

Employed

Sub-Sample

Full-

Sample

Off-Farm

Employed

Sub-Sample

Full-

Sample

Off Farm Job (Head) 23.0 36.3

Off Farm Hours Per

Annum 467 113 1572 571

9

ITALY IRELAND

Independent Variables Off-Farm Employed Full-Sample Off-Farm Employed Full-Sample

Age 53.40 55.78 48.98 54.35

Sex (= 1 male; 2 female) 1.29 1.34 1.03 1.05

Specialist Dairy 0.0927 0.1388 0.0540 0.1571

UAA (ha) 15.11 24.18 27.47 36.72

Spouse (= 1 if work off-farm ) 0.1146 0.0656 0.4190 0.3167

Married (= 1 if married) 0.3709 0.4114 0.7449 0.6730

Number of young in the family farm 0.0801 0.0465 0.8318 0.6278

Number of family members living in

the farm

1.8457 1.9466 3.6214 3.2889

Number of family members working

in the farm

0.2409 0.3482 N/A N/A

Hired (= 1 if presence of hired

workers)

0.2099 0.2617 0.1097 0.1827

Number of bovine per UAA 0.7564 0.8798 1.1429 1.3093

Decoupled payments 2,529 5,441 7,237 9,059

Coupled Income 2,517 3,936 2,636 7,780

Other subsidies (investment aids,

organic payments …)

442 630 2,676 2,764

Off Farm Employment Rates in Ireland 2002-2009 Teagasc National Farm Survey

10

20

25

30

35

40

45

50

55

60

2002 2003 2004 2005 2006 2007 2008 2009

% of Operators with anoff-farm employment

% of farms where spousehas an off-farmemployment

% of farms whereoperators and/or spousehas off-farmemployment

Off Farm and Coupled Farm Wage Rates in Ireland

11

-5

0

5

10

15

20

25

2002 2003 2004 2005 2006 2007 2008 2009

Average On-Farm WageRate

Average ConstructionWage Rate (All ManualEmployees)

National MinimumWage

Average Industry WageRate

METHODOLOGY

12

Neo-Classical Framework

Households behave to maximise their utility subject to budget and time constraints Becker (1965) A theory of the Allocation of Time

Drawed upon earlier work of Schultz (1960) on education decisions

The time intensity of consumption goods “Everyone would agree that even dining take time, just as schooling does, time that could have been used productively”

Lee (1965) Allocating Farm Resources between Farm and Nonfarm uses Extend the labour-leisure model for the special case of farm

operator households Heckman (1979) Sample Selection Bias as a Specification Error

Provided a two-step method that can potentially correct for sample selection bias

13

Neo-Classical Applied Literature 14

Sumner (1982) - incorporated sample selectivity bias into off-farm labour supply modelling

Ahearn, El-Osta and Dewbre

(2006) - Negative effect of government payments greater in 1996 than 1999

Attributed this to the size of the payments rather than the policy mix of payments

A $10,000 increase in actual payments reduces the likelihood of farm operator working off-farm by 9.8% in 1996 and 4.63% in 1999

El-Osta, Mishra, Morehart (2008) Multinomial logit model with

four possible strategies for husband and wife

$10,000 increase in expected payments reduces likelihood of both husband and wife working off-farm by 8.6%

Corsi and Salvioini (2012) Impact of 2005 CAP reform on

off-farm labour participation among 437 cereal, oilseed and protein crop farmers in Italy.

The single farm payment is found however not to be a significant driver of participation

Decoupling - Relative Wage Effect

Coupled Farm Wage

Relative Attractiveness of Off Farm Work

Off-Farm Labour Supply

15

Decoupling – Wealth Effect

Non-Labour Income

Leisure is a Normal Good

Therefore Demand for Leisure

Off-Farm Labour

16

RESULTS

17

Probit Results (Random Effects)

DEPENDENT

VARIABLE IRELAND ITALY

Age 0.355*** 0.347*** 0.348*** 0.061*** 0.060*** 0.054***

Age Squared -0.005*** -0.005*** -0.005*** -0.001*** -0.001*** -0.001***

Sex -0.255 -0.276 -0.269 -0.140*** -0.143*** -0.151***

Specialist Dairy -1.389*** -1.347*** -1.379*** -0.478*** -0.481*** -0.548***

UAA (ha) -0.006** -0.005** -0.006** -0.004*** -0.005*** -0.003***

Spouse work off-farm 0.0309 0.0413 0.0369 1.486*** 1.487*** 1.482***

Married 0.657*** 0.676*** 0.664*** -0.696*** -0.698*** -0.703***

Number of young -0.223*** -0.231*** -0.228*** -0.029 -0.031 -0.032

Household Size 0.198*** 0.199*** 0.198*** 0.117*** 0.118*** 0.114**

No. Family Members

working on Farm

-0.220*** -0.222*** -0.219***

Hired Workers (1,0) -0.026 -0.028 -0.023 -0.200*** -0.204*** -0.196***

Number of bovine Per

UAA

-0.027*** -0.027*** -0.027*** -0.014** -0.014** -0.015*

Decoupled Pay

(in €10,000s)

-0.088 -0.003**

Coupled Income

(in €10,000s)

-0.030 0.001

Other subsidies -0.008 -0.001

_cons -7.410*** -7.243*** -7.263*** -1.655*** -2.517*** -2.123***

18

Hours Equation Results (Fixed Effects)

DEPENDENT VARIABLE IRELAND

ITALY

Age 0.877*** 0.895*** 0.941*** 0.29*** 0.30*** 0.29***

Agesq -0.0132*** -0.0134*** -0.0140*** -0.00408*** -0.00417*** -0.00411***

Specialist Dairy -4.257*** -4.150*** -4.500*** 0.39 0.32 0.24

UAA (ha) -0.0203* -0.0180* -0.0226** 0.01 0.01 0.02

Spouse working off-farm -0.703*** -0.674*** -0.691*** 4.42*** 4.57*** 4.54***

Married 0.483 0.545 0.612 -1.86** -1.94** -1.96**

Number of young -0.364* -0.388* -0.412** -0.45* -0.46* -0.49*

No. family members

living in the farm

0.0143 0.0318 0.0463 0.51** 0.53** 0.56***

No. family members

working in the farm

-0.57* -0.60* -0.61**

Hired Workers (1,0) -0.217 -0.244 -0.214 0.15 0.12 0.12

Number of bovine on

UAA

-0.0571** -0.0597** -0.0636*** -0.08*** -0.09*** -0.07***

Decoupled pay

(x €10,000)

-0.0468 -0.17***

Coupled Income

(x €10,000)

-0.172*** 0.17***

Other subsidies -0.00333 0.13

Mills ratio 1.948** 2.050** 2.177** 1.13 1.26 1.23

_cons 2.791 2.396 1.389 -1.70 -2.27 -2.09

19

Ireland - Coupled Farm Wage Rate by System Pre and Post Decoupling

-5 0 5 10 15 20

Dairying

Dairying and Other

Cattle

Cattle and Other

Mainly Sheep

Tillage

All Farms

2007

2004

20

Summary 21

Decoupling has a significant negative effect on participation in Italy (insignificant in Ireland)

Decoupling has a significant negative effect on the supply of labour hours in both countries

Coupled Income has bigger negative impact than Decoupled Payments on off-farm labour supply in Ireland

Unusual result for Italy in that coupled income has positive association with off-farm labour supply

Policy 22

Job-Specific Human Capital limits options Non-Pecuniary benefits of farming Relatively low income targets and strength of the wealth effects Loss of work experience outside of the farm inhibits re-entry to off-farm

employment In the case of Ireland, taking up an off-farm job is usually a very big

commitment Perhaps difficult to get employment with suitable hours combined with

inertia Dairy farmers an unlikely target group for off-farm employment except

those exiting sector Differences between countries in terms of farm type characteristics and

labour market conditions and at different points of the income distribution Does Italy have greater scope for higher off-farm employment given the

existing lower level? Participation under different distribution of direct payments?