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Real Options Approach to Inter‐Sectoral Migration of U.S. Farm Labor
Author(s) -
Önel Gülcan,
Goodwin Barry K.
Publication year - 2014
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aau004
Subject(s) - relocation , economics , wage , labour economics , investment (military) , incentive , agriculture , value (mathematics) , labor mobility , microeconomics , geography , archaeology , machine learning , politics , computer science , political science , law , programming language
The core of the literature on inter‐sectoral labor migration is based on net present value models of investment in which individuals are assumed to migrate to take advantage of positive wage differentials. In this article, we argue that a real options approach, taken together with the adjustment costs associated with sectoral relocation, may provide a basis for explaining the migration of farm labor out of the agricultural sector. Given the irreversibility of migration decisions and uncertainty in the economy, potential migrants might choose to postpone migration, even in the face of positive wage differentials. Using annual U.S. employment data from between 1948 and 2009, our results indicate that large elasticities between economic incentives and out‐farm migration are observed after a high threshold of wage differentials between farm and off‐farm sectors is surpassed.