The Common Agricultural Policy and Farmers’ Off-farm Labour Supply

This paper uses farm-level data from Ireland to explore the impact of agricultural policies on the farm operators’ off-farm labour allocation decisions. The hypothesis that decoupled direct payments induce farmers to allocate more time to off-farm employment is tested. Despite earlier studies based Irish data finding evidence to support this hypothesis, the analysis presented here suggests that decoupled direct payments are significantly and negatively associated with both the probability and amount of time allocated to off-farm work. The potential relationship between farm income variability and off-farm employment decisions in the short and medium term for the case of Irish farm operators is also explored. The analysis identifies a positive association between farm income variability and off-farm employment in the medium term but no significant relationship in the short-term. This suggests that off-farm employment is part of a wider portfolio decision and the recent increases in farm income variability due to reforms of the Common Agricultural Policy, has induced farmers to work more off farm.