Off-farm labour participation of Italian farmers, state dependence and the CAP reform

We analyse the determinants of off-farm labour participation of farmers, an issue relevant in view of the agricultural sector coping with increasing productivity and in terms of rural development. We apply a farm-household theoretical model. The data for the empirical analysis are a 5 year (2003-2007) balanced panel of 3294 Italian farms, drawn from the Farm Accounting Data Network. The explanatory variable is the dummy indicator of the farm operator working or not off the farm. The explanatory variables comprise personal, household, and farm characteristics, and few variables of the local labour market. Since in the period a major reform of the Common Agricultural Policy (CAP) took place, we also add related variables. For estimation, we use different dynamic models, accounting for both heterogeneity and state dependence, as well as for the initial conditions (Heckmann, 1981; Wooldridge, 2005; Orme, 2001). Our results suggest that, when keeping into account all these features, present work state is almost totally explained by previous state and by idiosyncratic characteristics, which implies a strong persistence. Variables concerning personal characteristics found to be relevant in cross-sectional analyses are not found to be significant in the dynamic setting. Finally, the variables related to the reform have no statistically significant effect on the decision to work off-farm