Goodwin, Barry K.

Onel, Gulcan

English

Research Papers in Economics

 
Threshold Effects on Inter-Sectoral Migration of U.S. Farm Labor  
 
 
 
 
 
Gülcan Önel 
*§ and Barry Goodwin
* 
 
 
* Department of Agricultural and Resource Economics, North Carolina State University, Raleigh, NC, 27695 
§ SAS Institute, Cary, NC, 27513 
 
 
 
 
 
 
 
 
 
 
 
 
 
Poster prepared for presentation at the Agricultural & Applied Economics Association’s 2011 
AAEA & NAREA Joint Annual Meeting, Pittsburgh, Pennsylvania, July 24-26, 2011 
 
 
 
 
 
 
 
(PRELIMINARY, Do not cite without authors' permission) 
 
Copyright 2011 by Gülcan Önel and Barry Goodwin. All rights reserved. Readers may make 
verbatim copies of this document for non-commercial purposes by any means, provided that this 
copyright notice appears on all such copies. 
 
 Threshold Effects on Inter-Sectoral Migration of U.S. Farm Labor
Gülcan Önel *§ and Barry K. Goodwin *
§SAS Institute, and *North Carolina State University
 We estimate the following two-regime inter-
sectoral labor migration model. Regime 1 occurs 
when the discrepancy between returns to labor in 
farm sector and those achievable in the nonfarm 
sector (z) exceeds a certain threshold, c. 
where                                     
 In Regime 1, in general, the effects of 
explanatory variables on out-farm migration are 
stronger than those observed in Regime 2.
 We follow the conceptual model presented by 
Barkley (1990). Migration is defined as:
and it is a function of
where r is the relative (nonfarm to farm) average 
product of labor, g is the relative size of labor force, 
u is nonfarm unemployment rate, lv is real value of 
farm land ,and gov is the fraction of direct 
government payments in net farm income. 
 We use annual data from 1948-2010. They were 
compiled from BLS, BEA and USDA databases.
 The plot of migration variable, M, is shown in the 
following figure. There are noticeable outliers 
associated with the definitional changes in the BLS 
employment data. We add year dummies to the 
estimated model to account for these changes.
 If the log of the ratio of average product of nonfarm 
labor to average product of farm labor (a measure of 
relative returns to labor) exceeds 0.746, the migration 
model is governed by Regime 1 parameters, 
otherwise Regime 2 parameters. 
 In this paper, we examine possible threshold 
effects on functional relationships characterizing 
inter-sectoral migration of farm labor.
 As opposed to Barkley (1990), we found the effect 
of relative labor force ratio to be negative. All other 
significant coefficients carry the expected signs.
Land values and direct government payments 
seem to have no significant effect on migration of 
farm labor to nonfarm sectors.
 The significance of the threshold parameter, 
quality of the employment data (especially the 
outliers), and the unexpected signs on some of the 
estimated coefficients need further exploration. 
Preliminary, please do not cite. 
Contact gonel@ncsu.edu for more information.
Motivation
Conclusion
Information
Results Model and Data
 Farm labor may migrate 
between farm and off-farm 
sectors as a result of time 
allocation and investment 
decisions that are motivated 
by wage differentials 
between sectors.
 In 2002, nearly 93 percent of farm households 
had off-farm income (USDA).
 There are unofficial barriers and costs associated 
with the reallocation of farm and off-farm labor such 
as travel costs, change in housing costs, the loss (or 
gain) of amenities, disutility created by habit 
persistence and other psychological costs borne by 
the migrating laborer. 
 Given these adjustment costs, movement of labor 
between on-farm and off-farm jobs requires that the 
differences in returns to labor in two sectors must 
exceed a certain threshold in order to make the 
reallocation profitable or utility-maximizing.
 The implication of this in empirical modeling is that 
the functional relationships characterizing the labor 
migration models may be nonlinear (in parameters).
Figure 1. Farm and Rural Populations as Percentages of Total 
Population, Source: USDA
1
1
ff
tt
t f
t
LL
M
L
1 1 1 1 1 , , , , t t t t t t M f r g u lv gov
 The following figure shows that the discrepancy 
between nonfarm and farm labor productivity, which 
represents relative returns to labor between two 
sectors, increases over the sample period.
 Threshold value, c, is estimated via a grid search 
that is based on minimizing Sum of Squared Residuals 
(SSR). The following figure shows all candidate values 
of c and corresponding SSR values.  
(1) (2)
11 (1 ) t t t t M X X e
1 if z c

Threshold Effects on Inter-Sectoral Migration of U.S. Farm Labor

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