Rural Household Labour Demand, Contract Choice, Hoarding Cost and Poverty: Evidence from Western Kenya

This study determines the factors that influenced contract choice, labour demand and examines the existence of labour hoarding practice in Western region of Kenya. Data from Egerton University’s Tegemeo Institute of Agricultural Policy and Development was used for the analysis.. A two step Heckman model was employed to estimate the extent of engagement in daily and semi-permanent contracts conditional on choice of contract. Results from the study show that casual and semi-permanent contracts are substitutes. Family labour negatively influences engagement in daily and semi-permanent contracts hence it is a substitute to the two forms of the contracts. Increase in wages paid to casual contracts is negative and significant to the extent of daily contract engagement but positive and significant to semi-permanent contracts supporting the substitutability of daily contracts for semi-permanent contracts. Methods and costs of farm preparation are significant in influencing the choice and demand for any type of contracts. The proxy variable for hoarding costs is significant and positive indicating that there are hoarding costs incurred in the maintaining a steady pool of labour within the farm. From the results the relatively asset poor farmers engage in the wage high daily contracts to avoid incurring hoarding costs as indicated by the dummy denoting poverty level. However, to avoid uncertainty during peak periods semi-permanent contracts are highly employed by the asset poor farmers. From the results, farmers willing to minimize hoarding costs may find themselves substituting family labour for daily contracts or in absence of family labour, semi-permanent contracts for daily contracts