Assessing Off-Farm Employment and Income in Rural China

By employing a rigorous research approach integrating theoretical and empirical research of rural labor market in China, this thesis strives to fill the gap in the literature that the role of farm production risks has been overlooked in the growing labor market. This thesis consists of three chapters. The first chapter provides a broad overview of the development of the rural economy in China since 1978. The issues to be discussed include rural political and economic reforms, their positive impacts on agricultural growth and the development of rural labor market. Chapter two and three are two distinct yet related research papers investigating different aspects of the labor market of rural China. In general, to evaluate the role of farm production risks in the labor market, this thesis sets up a rigorous theoretical model of profit maximization in which the farm household engages in agricultural and/or nonagricultural activities. The central hypothesis proposed in the thesis is that rural households make their labor allocation decision in response to agricultural production risks, and specifically high agricultural production risks would favor the off-farm labor market. The results confirm that the oscillation in farm income affected not only intersectoral input allocations, but also wages. Chapter two investigates farm households and their individual members’ labor supply decision in response to farm production risks after controlling for a number of other factors (e.g., demographic characteristics, farm characteristics, and local market features). A rigorous theoretical framework incorporating agricultural risks is constructed and comparative statistics are derived and assessed. Associated empirical models are developed to quantify households’ decisions on supplying off-farm labor based on a sample of large-scale nationwide household finance survey in 2010. My empirical results show that farm income variability significantly impacts off-farm labor supply by farm households and individual farmers, which implies off-farm employment is a risk adaption behavior among Chinese farmers. On the basis of the sample employed in Chapter 2, Chapter 3 analyses the off-farm wage equation for the workers from those farm households. The aim of this study is to examine whether farm production risks have significant impacts on off-farm wages in rural China. Heckman correction procedure is applied to overcome the sample selection problem. The findings of this chapter are generally consistent with previous research on determinants of wages in rural China. However, this study is one of the first that confirms farm production risks not only affect the employment status but also affect the wage income. In addition, in order to identify the potential differences between part-time farmers and non-farmers in respect to (1) searching for off-farm employment and (2) the possible different criteria that employers apply for these two individual groups in the off-farm labor market, I built up another two Heckman models respectively. My results suggest some important implications for that. In summary, improved understanding of human behavior and enhanced knowledge of the role of agricultural production risks in China’s rural labor market will provide valuable information to strengthen management strategies