The Common Agricultural Policy and the Farm Households’ Off-Farm Labour Supply

Abstract

The economic sustainability of farm households is frequently dependent on the availability of off-farm employment. This paper uses farm-level data to examine the impact of the Common Agricultural Policy (CAP) direct payment scheme, farm household characteristics and agricultural market conditions on farm households’ labour allocation decisions in Ireland. Among other things, the hypothesis that decoupled direct payments induce farm household members to allocate more time to off-farm employment is tested. The analysis presented here suggests that decoupled direct payments are significantly and negatively associated with both the probability and amount of time allocated to off-farm work in the case of the farm operator. For married couples, the analysis finds a negative relationship between decoupled payments and the probability of both the farm operator and the spouse working in off-farm employment. Interestingly, decoupled payments have no significant relationship with the probability of the spouse only working in off-farm employment. This result corresponds to the finding of El-Osta et al. (2008) and suggests that decoupled payments tend to play a very limited role in explaining the off-farm employment decisions of the spouse. This analysis contributes to our understanding about the importance of off-farm labour in supporting farm household income. Furthermore, the analysis contributes to our understanding about the role of the farm spouse in contributing towards farm household income, the farm viability and the relationship between off-farm labour decisions and agricultural policy.

Keywords: off-farm labour supply, direct payments, probit model, multinomial logit model

JEL Classification: J22, J43, Q12