OFF-FARM LABOR AND THE STRUCTURE OF U.S. AGRICULTURE: THE CASE OF CORN/SOYBEAN FARMS

Abstract

While the growing importance of off-farm earnings suggests large benefits accrue to farmers from efforts to expand off-farm income opportunities, survival still depends on greater efficiency. To comprehensively gauge the economic health of farm operator households we interpret off-farm income as an output along with corn, soybeans, livestock, and other crops. To accomplish this task we use two related methodologies. First, using 2000 data, we setup a multiactivity cost function to analyze labor allocation decisions within the farm operator household and also to estimate returns to scale and scope. Second, using 1996-2000 data, we follow an input distance function approach to estimate returns to scale, technical progress, cost economies, and technical efficiency--and compare the relative performance of farm operator households with and without off-farm wages and salaries. Our preliminary results suggest that over our sample period, scale economies are a primary factor driving up farm operator household size and decreasing the competitiveness of small farm operator households in the base farm operator household model where off-farm income is constrained to zero. But small farm operator households appear to achieve efficiency levels more comparable to larger farm operator households when off-farm income is accommodated. The evidence therefore suggests that while short-falls in these productivity components are decreasing the competitiveness of small farm operator households as agricultural structure changes, corn/soybean farm operator households have partially adapted to such pressures by increasing off-farm income and, therefore, achieving economies of scope.Labor and Human Capital,