The Impacts of Change in Local Industrial Composition on Off-Farm Labor Supply

Most U.S. farm households have either the operator or spouse working off-farm for wages and salaries or proprietorships. Additionally, off-farm income continues to grow as a share of total household income. Little is known about how changes in local industrial composition impact off-farm labor decisions. Using a household utility maximization framework, this analysis employs a two-stage process to 1) predict joint off-farm labor participation of operators and spouses, and 2) measure the impact of farm and household characteristics, and changes in county-level industry on levels of off-farm labor supply. Results show that labor participation decisions are jointly determined. Human capital is among the most significant individual characteristics impacting labor supply. The most important factors are the industrial sector of the off-farm job, and whether that sector is growing or in decline. Growth in retail trade and service employment is associated with increases in labor supply for the operator and spouse.