Labor Supply by Farm Operators Under "Decoupled" Farm Program Payments.

As part of 1996 legislation, the U.S. began paying farmers production flexibility contract payments designed to be somewhat decoupled from current production decisions. In the labor-leisure model, decoupled payments would be expected to only have a wealth effect, but coupled payments would be expected to have both a substitution and a wealth effect. In this paper, the impacts of the decoupled payments and other government payments on both farm and off-farm labor allocations for farm operators are considered using data from the Agricultural Resource Management Survey (ARMS). Results indicate that government payments tend to increase the hours operators work on their farm and decrease the hours they work off the farm. This is true whether the payments come from programs which tie payments to current year production, or not.