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Off‐farm labor supply responses to permanent and transitory farm income
Author(s) -
Kwon ChulWoo,
Orazem Peter F.,
Otto Daniel M.
Publication year - 2006
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.2006.00103.x
Subject(s) - consumption (sociology) , economics , permanent income hypothesis , labour economics , farm income , agricultural economics , market liquidity , sample (material) , production (economics) , microeconomics , monetary economics , social science , chemistry , chromatography , sociology
A sample of Iowa farm couples is used to evaluate whether off‐farm labor supply decisions respond to permanent and transitory components of farm income. Off‐farm labor supply of both spouses declines in response to increases in permanent farm income. Farm wives also reduce off‐farm labor supply in response to positive transitory farm income shocks. Consequently, one mechanism farm households use to smooth their goods consumption when facing fluctuating farm income is to modify their consumption of leisure. Ability to smooth goods consumption does not imply the absence of liquidity constraints among farm households unless leisure consumption is also smoothed.