Determinants of household demand for and supply of farm labour in rural Ethiopia

Typical farm households in rural areas of developing countries allocate their labour resource among own-farm work and off-farm (market) activities in response to different factors. This study examines determinants of household demand for and supply of farm labour in rural western Ethiopia using household sample survey data collected during 2010/11 agricultural season. The instrumental variable estimation technique used to analyse the data indicates the importance of shadow wage, shadow income, and demographic factors at influencing farm labour supply. Similarly, the demand for farm labour is significantly affected by farm attributes, off-farm income and family composition. The findings with regards to farm labour supply imply that measures taken to influence returns to labour on farm may produce different results for labour market participant and non-participant households. Moreover, increasing the off-farm employment opportunities can help release the liquidity constraint and thus promote increased use of hired farm labour. JEL Classification:\t J220,\t J230,\t J430 1.