Agricultural policy reform and off-farm labour decisions

Off-farm labour decisions of a sample of Kansas farmers are evaluated. The central question of our analysis pertains to whether 1996 US farm policy reforms may have altered the decisions to work off the farm. The effects of policy decoupling on off-farm labour are complex: different aspects of policy changes can have opposing effects on off-farm work decisions. Essentially, this makes this issue an empirical question. Results show that the introduction of fixed, decoupled payments in 1996 might have reduced the likelihood of off-farm labour participation. However, the new policy environment may have increased farm households' revealed aversion to risk, motivating a higher participation in non-farm labour markets. The effects of 1996 policy reforms on farm income variability could have been attenuated by changes in US crop insurance programmes and by an increase in emergency assistance payments towards the end of the 1990s. The reduction in price supports may have increased the motivation for working off the farm. The net effect of the overall reforms on off-farm work participation is not likely to have been large.