Off- Farm Labor Supply of Farm- Families in Rural Georgia Dr. Ayal Kimhi Ofir Hoyman Tbilisi, 2005

Research Goals Estimating the factors affecting the labor supply of Georgian family members off- farm by focusing on: 1. Personal characteristics. 2. Farm characteristics. 3. Having official document owning the land.

4. Financial risk in farm work. 5. Efficiency in managing the farm. 6. Wage from off- farm- work. 7. Other incomes (not from work).

The Conceptual Model The family members decide simultaneously on consumption and leisure together with farm production and time allocation to farm and off- farm for each family member. The farm family maximizes utility under time constraint; budget constraint and a farm production function.

The internal solution: each family member equates his marginal value of time in farm work, leisure and off- farm work. A member of the farm family will not participate in the local labor market if the wage he could earn is lower than the marginal value of his work on the farm at zero off- farm work hours.

The assumption is that wage and off- farm labor supply are endogenous variables that are determined simultaneously. The Empirical Model The estimation is a four-step procedure and based on the Sample Selection Model.

(A) Estimating the participation equation and deriving predicted Inverse Mill’s Ratio; (B) Estimating the reduced-form labor supply equation and deriving predicted off- farm work days;

(C) Estimating the wage equation after substituting predicted off-farm work days and deriving predicted wage; (D) Estimating the structural labor supply function after substituting predicted wage.

Data The data used were collected by the Individual Farm Owners’ Survey carried out on 2003 in four rural districts of Georgia: Dusheti, Mtskheta, Sagarejo, and Gardabani. The survey included 2,520 individual farms; 630 farms from each district.

There are 7,090 individuals in the sample older than 14. 1,577 (22%) individuals are working off the farm.

Descriptive Statistics- Averages of Main Variables

Results

Conclusions Farmers use the off-farm labor market to supplement farm income. Off-farm income compensates farmers for the income risk they face in farming.

The results indicate that off-farm labor market is in the early stages of development:  the returns to human capital seem to be nonexistent relative to the returns to physical strength.

 wages in part-time (temporary or seasonal) off-farm work surpass the wages in full-time jobs.  the opportunities for females are much lower than those for males.

The off-farm labor decisions are sensitive to the situation in the land market:

 possession of a land document decreases off-farm labor participation, indicating that a land document increases farmers’ confidence in their ability to make a living out of farming and therefore reduce their tendency to seek alternative income sources.

 the farm efficiency has a negative effect on the probability of working off the farm, but has a positive effect on days of work off the farm. This could indicate that farmers have difficulties expanding their farming operation.

 the difficulties to expand farm operation can be a consequence of constraints on land transactions, credit rationing, or other constraints.

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