Household Composition, Labor Markets, and Labor Demand: Testing for Separation in Agricultural Household Models

TLDR

The study tests whether farm labor supply and demand decisions are separated, using household composition as a key determinant. The authors develop and estimate an empirical model on rural Java data to test whether farm employment is independent of family composition, after evaluating the test’s power against alternative specifications. The analysis finds no evidence that farm labor allocation decisions are independent of household structure, and the result holds across alternative labor demand specifications. © 1992 The Econometric Society.

Abstract

This paper tests the separation of farm labor supply and labor demand decisions, using the observation that household composition is an important determinant of farm labor use with nonseparation. After assessing the conditions under which the test has power against several alternatives, an empirical model is developed to test the proposition that farm employment is independent of family composition. The model is estimated on a data set from rural Java. The null hypothesis that farm labor allocation decisions are independent of household structure is not rejected. The results are robust to different specifications of the labor demand function. Copyright 1992 by The Econometric Society.