Determinants of Labor Market Participation Choice of Farm. Households in Rural Ethiopia: Multinomial Logit Analysis

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1 Journa of Economics and Sustainabe Deveopment ISSN (Paper) ISSN (Onine) Vo.4, No.1, 2013 Determinants of Labor Maret Participation Choice of Farm Abstract Househods in Rura Ethiopia: Mutinomia Logit Anaysis Amsau Bedemo 1*, Kindie Getnet 2, Beay Kassa 3 1. Department of Economics, Woega University, P.O.Box 395, Neemte, Ethiopia 2. Internationa Water Management Institute, P.O.Box, 5689, Addis Ababa, Ethiopia 3. Schoo of Agricutura Economics and Agribusiness, Haramaya University, P.O.Box 138, Ethiopia * E-mai of corresponding author: amsau72@gmai.com This paper examines the determinants of abor maret participation decision of farm househods in rura Ethiopia using sampe househod survey data coected from the study area. Factors affecting househods probabiity of participation in a particuar abor maret regime were anayzed using descriptive data and mutinomia ogit mode. The overa resut of the anaysis indicated that farm househods in the study area integrate into abor marets as buyers or seers of abor. Specificay, the probabiity of a househod to choose a particuar abor maret regime was reated to initia differences in resource endowments, househod composition and characteristics, farm attributes and ocation characteristics. The finding that househods integrate into abor marets as buyers or seers has considerabe poicy impications with regards to the distribution of benefits that may arise from poicy interventions, were the rura abor maret serves as a mechanism through which the distribution of benefits from such interventions are reaized. Key words: househod, abor, abor maret participation, mutinomia ogit, off-farm, rura 1. Introduction It is we recognized that the abor power is the principa asset of the poor in rura areas of deveoping countries and that the rura abor maret is a ey transmission mechanism through which the benefits of most practica interventions may trice down to the rura poor. In deveoping countries with we deveoped food processing and agribusiness activities, the rura abor maret may consist of arge scae activities that have the capacity to absorb arge number of aborers. However, in most sub-sahara African countries incuding Ethiopia, the abor maret is usuay composed of ow paid farm and non-farm wage empoyment activities operated by smahoder farmers. In such countries, the rura abor maret was viewed negativey with a genera perception that it is a protection or refuge for the rura poor (Lanouw, 2007; Caros, 2010). Moreover, the rura abor force is growing at a rate faster than the agricutura abor force thereby imiting the abiity of the agricutura sector to absorb rura abor (Word Ban, 2008). These aong with ow agricutura productivity had chaenged the potentia of agricutura sector empoyment as a pathway out of poverty (Lanouw, 2007). As a resut, rura abor marets emerged as an aternative to and suppementary for the forma agricutura sector empoyment. Many empirica evidences indicated that in deveoping countries such as Ethiopia, the rura abor maret is functioning we and has become an important source of income and empoyment for the maority of househods. It contributes significanty to overa househod income, empoyment and pays an important roe in poverty reduction efforts of poor househods (Demee, et a., 2006; Otsua and Yamano, 2006; Awuor, 2007; Word Ban, 2008; Victor and Awudu, 2009; Emmanue, 2011). Labor maret participation decision is reated to poverty in that the earnings from such participation are among the main sources of income for househods impying that the abiity to earn income becomes an important determinant of poverty. However, this abiity depends on the functioning of the rura abor maret, and the participation decision of poor househods in abor marets. Such participation decision coud have different poicy impications in the context of rura farm househods in deveoping countries. There are a number of empirica studies that anayzed abor maret participation decision of farm househods in rura deveoping countries. Some of the recent studies are outined as beow. Stefania (2012) identify and anayzed the househod specific factors affecting abor maret participation decision of farmers in South Africa. His finding indicated that iquidity constraint and maret imperfections matter in the choice of the abor maret participation strategy adopted. The finding concuded that asset endowments and maret imperfections had shaped househods abor maret participation decisions in the study area. In Nigeria, Babatunde et a. (2010) identified determinants of participation in off-farm empoyment among sma-hoder farming househods in 133

2 Journa of Economics and Sustainabe Deveopment ISSN (Paper) ISSN (Onine) Vo.4, No.1, 2013 Kwara State of Nigeria using survey data from sma-hoder farming househods in rura areas of the state. The resut of their econometric anaysis indicated that factors reated to househod composition and characteristics, the amount of productive assets and access to different infrastructura faciities significanty infuenced participation in off-farm empoyment. They concuded that given the existing compementarities, we designed poicies coud promote farm and off-farm income earning opportunities simutaneousy, especiay for the poorer househods. Thomas et a. (2008) anayzed different rura abor maret participation regimes of Chinese farm househods. The resut of their anaysis showed that househod, farm, and ocation characteristics infuenced the probabiity to seect one of the abor maret participation regimes. Moreover, Stephan (2007) assessed the dynamics of Chinese rura househods participation in abor marets using farm househod data and discrete time hazard approach. His finding reveaed that abor maret participation decisions were significanty reated to severa househod and farm characteristics. Farm househods in the study area are characterized by differentia asset positions and resource endowments that are expected to infuence their suppy of and demand for abor thereby inducing them to engage in the abor maret. Moreover, the abor maret to which househods reate is imperfect due to many constraints which may ead to divergence between wages received when seing abor and wages paid when hiring abor, creating wide pecuiar price bands around the maret wage(tassew, 2000). These may resut in differentia integration of househods into abor marets either as seers or buyers. Thus, anaysis of the determinants of househod abor maret participation decision is important because househods, besides to deciding how much of eisure to consume and abor to use as an input, they decide how much of their abor to suppy to the maret based on the chosen abor maret regime. Moreover, they may choose not to participate in any type of abor maret if they are sef-sufficient. Such decisions can have poicy impications in terms examining the tric down effects of interventions to the targeted poor. Accordingy, the main purpose of this study is to identify and anayze the determinants of abor maret participation choice of househods in rura Ethiopia using simpe occupationa choice mode where participation decision is possiby expressed in four regimes as buyers, seers, simutaneous buyers and seers and sef-sufficient househods. The empirica strategy used for estimation of such mutipe choice decisions is mutinomia ogit mode. The detais of this mode are provided in section two. The rest of the paper is organized as foows. Section 2 discusses the theoretica framewor and empirica strategy of estimation. Section 3 introduces the data set and the situation of the rura abor maret in the study area. Section 4 presents and discusses the estimation resuts. Section 5 concudes. 2. Theoretica Framewor and Estimation Strategy In a neo-cassica approach to anaysis of abor marets, farm househods are assumed to be fuy integrated to the abor maret and operate competitivey based on many restrictive assumptions (Sadouet et a., 1991; Tassew, 2000). But practicay, in the context of most deveoping countries, the neo-cassica assumptions of abor marets do not hod and thus househod production and consumption decisions are iey to be constrained by many factors eading to a faiure in the abor maret (Sadouet et a., 1998; Ademan and Tayor, 2003; Kine, 2010). As a resut, househods in rura deveoping countries are exposed to abor maret imperfections characterized by poor competition and inefficiency which requires non-separabiity in agricutura househod modeing (Ademan and Tayor, 2003). The anaysis under this study is based on the non-separabiity assumption which best characterizes the abor maret situation in deveoping countries. According to the agricutura househod mode, househod s wiingness to hire farm abor and to se abor off the farm depends on farm characteristics, famiy composition, ocation features and socio-economic attributes. For instance, if the househod has adequate famiy abor, the need for farm abor can be satisfied without hiring abor from outside and aso the househod may se abor off the farm. Simiary, a househod may at the same time se abor outside but hire farm abor simutaneousy provided that the benefit from seing abor is greater than the cost incurred in hiring abor. Such abor exchanges among farm househods may arise due to the initia difference in absoute and reative factor endowments. In order to anayze aspects of househods decision to participate in a particuar abor maret regime, it is appropriate to specify participation decision as a mode of occupationa choice (Thomas et a., 2008).The choice mode impy that in addition to deciding how much eisure to consume and abor to use as an input, a househod decides how much abor to suppy to the maret (se) conditiona on the chosen abor maret regime. Thus, we can cassify abor maret participation choice of househods in to four regimes such as seers, buyers, simutaneous seers and buyers and sef-sufficient. 134

3 Journa of Economics and Sustainabe Deveopment ISSN (Paper) ISSN (Onine) Vo.4, No.1, 2013 Regime 1: Househods that ony suppy (se) abor (regime s); Regime 2: Househods that ony hire (buy) farm abor (regime h); Regime 3: Househods that simutaneousy suppy and hire abor (regime sh) and; Regime 4: Househods in autary or sef-sufficient househods (regime a). 135 We can extend the basic agricutura househod mode by adding the dummies for abor maret participation regime as given beow. According to the mode, househods are assumed to maximize utiity derived from consumption of goods and eisure subect to production, time, and budget constraints as given beow: MaxU(C;ZU ) (1) Subect to; G(x, r;zg ) = 0 (2) h h s s T+ X + D X D X C 0 (3) h h s s Pm Cm PcX c+ PvX v D g(x ;Zg ) + D f(x ;Z f ) + E (4) where U is househod s utiity function, C is a vector of consumption goods consisting of maret commodities (C m ) and eisure (C ), and Z U represent exogenous utiity shifters such as househod characteristics. G is a we-behaved production function, where x represents a vector of produced goods, r is a vector of quasi-fixed factors, and Z G is exogenous production shifters such as househod and farm characteristics. The farm househod is assumed to produce agricutura products (X c > 0) using variabe inputs (X v ), abor (X ) and the fixed factors (equipment and and). The househod faces a time constraint, where T is the tota time avaiabe and f h f h X = X + X is tota on-farm abor time subdivided into famiy abor time ( X ) and hired abor( X ). Furthermore, X indicates the amount of famiy abor suppied to off-farm wor. s Farm househod s budget constraint indicated in Equation 4 states that the househod s expenditures (eft-hand side) must not exceed its monetary income (right-hand side), where P m, P c and P v are the exogenous consumer and producer prices. The regime dummy variabes in the budget and the time constraint equations indicate the h four respective abor maret participation regimes. For exampe if D = D s =1, then the househod participates on both the maret for hired farm abor and the maret for off-farm abor and so on. Due to abor maret imperfections, the optima soution cannot be found by simpy soving the first order conditions of each aternative regime. The soution is thus decomposed in two steps: first finding the optima soution conditiona on the maret participation regime and then choosing the maret participation regime that eads to the highest interna wage rate. The choice of a particuar abor maret participation regime is determined by comparing the interna wage rates obtained for the four participation regimes. Because a the four regimes can be formay written as simiar optimization probems, the endogenous abor price of each regime can aso be formay written as the same shadow wage function, W (Thomas et a., 2008). Thus, we have: h W = f(p, r,t,e, Zu,ZG,Zg ) (5) s W = f(p, r,t,e,zu,zg,z f ) (6) hs W = f(p, r,t,e,zu,zg,zg,z f ) (7) a W = f(p,r,t,e,zu,zg ) (8) where p is exogenous output price, r is a vector of fixed factors of production, T is tota time avaiabe, Z u is househod characteristics, Z G is exogenous production shifter such as househod and farm characteristics, Z f is famiy abor suppied and Z g hired abor used. It is cear from the expressions that abor suppy shifters can ony affect the interna price (wage) if househods suppy (Z f,), hire (Z g ) and simutaneousy suppy and hire (Z f, Z g ) abor. The farm househod chooses the abor maret participation regime that eads to the highest interna wage rate as indicated beow (Eq. 9). h s hs a W = max(w,w,w,w ) (9) For the actua estimation of the choices, mutinomia ogit mode is appied as eaborated foows. Let W is the interna wage rate for househod if it chooses regime = (h, s, sh, a), a function of expanatory variabes such as farm, househod and regiona characteristics. This interna wage rate is not actuay observabe, but it is h s hs a possibe to define an observabe dichotomous variabe Wo equa to 1 if W = max( W, W, W, W) and Wo is equa to 0 otherwise. The probabiity that the th househod seects the th aternative regime may then be written as:

4 Journa of Economics and Sustainabe Deveopment ISSN (Paper) ISSN (Onine) Vo.4, No.1, 2013 ' ' i Pr = Pr(Wo = 1) = Pr[(β β )Z > e e ] for a i different from. (10) i If we assume cumuative distribution for this expression (Eq.10), the difference ( e e ) wi have a ogistic distribution and the choice mode wi be mutinomia ogit. However, the mutinomia ogit mode does not aow anayzing the probabiity of being aocated to a specific abor maret regime, rather ony the reative probabiities can be distinguished because of identification restrictions. So it is necessary to normaize by assuming one of the aternatives (sef-sufficient regime in this case) as a reference category so that each regime wi be compared against this base category. This normaization impies that the estimated mode reduces to three og-odds ratios of the foowing form: a Pr ' n = β Z; = h,s,hs (11) Pr ' The estimated coefficient ( β ) coud be interpreted as the margina change in the ogarithm of the odds of each possibe aternative over the reference regime caused by a margina change in the expanatory variabes. i 3. The Data Set and Househod Labor Maret Participation in the Study Area 3.1. The data set and variabes used in the anaysis This study used the data coected from 324 randomy and proportionatey seected sampe househods in three districts (namey, Guto Gida, Gida Ayana, and Jima Aro) of Western Ethiopia. These districts were seected based on their diversity in terms of access to off-farm wor opportunities and experience and exposure to abor maret participation (particuary, variations in the nature and extent of participation). Moreover, they represent broad cimatic condition comprising high and ow and farming systems. In order to account for the probem of heterogeneity stratified samping technique was empoyed and sampe househods were seected randomy and proportionatey. Sampe househods were interviewed using structured questionnaires that require short reca period. The data were coected in three round surveys foowing the main agricutura seasons in the study area so that seasona variations in househod time aocation, income and consumption expenditure coud be captured appropriatey. The variabes incuded in the anaysis are, age (and age square) of the househod head measured in years, education eve of the head in schoo years competed, share of educated adut members in the famiy at different eves (eementary, secondary, high schoo and above), sex of the househod head (dummy variabe), famiy composition variabes (number of dependents, number of adut aborers in the famiy and famiy size), farm reated factors (ie and cutivated in hectares and vaue of variabe farm inputs in Ethiopian Birr (Birr is Ethiopian oca currency unit (1USD=18.12 Birr in November (2012).), the estimated vaue of annua farm income and amount of credit in Birr. Moreover, anima weath in Tropica Livestoc Unit (TLU), non-abor income and ocation dummies were incuded in the mode Househod abor maret participation in the study area Farm househods in the study area were seen to participate in different types of farm and non-farm abor marets. About 73.5 per cent of sampe househods reported that they participated in off-farm activities of which 77 per cent were participants in wage abor maret and the remaining 23 per cent in off-farm sef-empoyment activities. One important aspect of the rura abor maret in the study area is househods participation in different abor maret regimes. Accordingy, househods participation can be categorized into four regimes as: ony seers, ony buyers, simutaneous buyers and seers and sef-sufficient. Most farm househods were activey invoved in each participation regime. For instance, out of 324 tota sampe househods, about 35 per cent participated as ony seers, 21 per cent as ony buyers, 17 per cent as simutaneous buyers and seers and 27 per cent are sef-sufficient househods. This indicates that farmers in the study area integrate into abor marets as seers or buyers of abor. Amost a of the empoyers and hired aborers were smahoder farmers themseves ocated within the same administrative ebee(kebee is the owest officia administrative unit in Ethiopia.). 4. Resuts and Discussion 4.1. Differentia factor endowments and abor maret participation The rura abor maret anaysis requires examining how househods integrate into abor marets and identifying the factors that infuence their choice of participation in different abor maret regimes. This section first provides descriptive anaysis of how initia differences in factor endowments induce househods to participate in the abor maret foowed by discussion of mutinomia ogit estimation resut. Tabe 1 indicates the distribution 136

5 Journa of Economics and Sustainabe Deveopment ISSN (Paper) ISSN (Onine) Vo.4, No.1, 2013 of househod resource endowments across farm size cass. As shown in the tabe, there are differences in absoute and reative resource endowments among househods across farm cass size. The indicators of reative resource endowments such as and owned and and cutivated per woring famiy member (and-abor ratio), farm impement per woring famiy member and number of oxen owned per unit of and owned a increased with an increase in farm size. There are aso differences in absoute factor endowments among different farm sizes. For instance, the amount of abor bought (hired-in farm abor), tota famiy abor used on the farm, the size of and cutivated and owned and the vaue of farm impement owned a increased with farm size refecting existence of differences in the initia factor endowments among farm househods. Such differences are expected to bring differences in margina productivity and induce househods to participate in the abor maret as seers or buyers. Tabe 2 aso reports the descriptive statistics of the use of abor and and and their returns across farm size casses. Obviousy, househods with sma farm size invoved more in seing abor. For instance, the percentage of sampe househods that cutivated ess than 2 hectares of and is about 50 per cent. Furthermore, the percentage of househods invoved in ony hiring farm abor increased with an increase in farm size, but those who engaged in ony seing abor decreased as farm size increases. Among sef-sufficient househods, the argest proportion (about 39 per cent) cutivated 2 to 2.99 hectares of and. Simiary, among simutaneous buyers and seers, the argest proportions (about 38 per cent) are the medium size farmers who cutivated 2 to 2.99 hectares of and. This entais that the medium size farmers are reativey iquidity constrained and thus invoved in woring off-farm in order to finance the expense of the hired farm abor. The data has aso indicated that the probabiity of participation in farm abor maret changes with farm size. Particuary, abor hired per unit of and cutivated and per adut famiy members increased with an increase in farm size. The fina point is that the existences of differentia resource endowments create difference in the margina productivity of abor across farm size as a resut of which advantageous transaction in the abor maret is expected to occur. Therefore, differences in factor endowments and the resuting difference in margina productivity provoe farm househods to engage in abor transactions Determinants of abor maret participation choice of househods In addition to the descriptive anaysis of how initia differences in factor endowments induces househods to participate in the abor maret (abor exchange), mutinomia ogit mode was fitted to identify factors that affect abor maret participation choice of househods. According to the agricutura househod mode, the decision to choose a particuar abor maret regime depends on factors that affect both the shadow wage and the maret wage such as famiy composition and househod characteristics, farm attributes, ocation characteristics and farm income. The mutinomia ogit estimation resut is presented in tabe 3. The estimated mode with LR chi 2 vaue (393.12) significant at 1 per cent or ess indicates the overa significance of the mode. We now that the mutinomia ogit anaysis wors if the decisions between mutipe aternative regimes are truy made simutaneousy indicating independence of the regimes. Thus, it is necessary to test the assumption of Independence of Irreevant Aternatives (IIA). The Wu-Hausman test for IIA was conducted to test the nu hypothesis that the odds are independent of other aternatives. The Hausman test statistics (chi 2 vaues) computed are given in tabe 3 for each participation regime. The chi 2 vaues for each regime are insignificant at any reasonabe eve which indicates evidence in favor of the nu hypothesis. This shows that the aternative participation regimes are mutuay excusive or the odds are independent of other aternatives. In genera, the mutinomia ogit resut presented in tabe 3 reveas that the abor maret participation choice of a househod is significanty reated to a number of factors that represent househod composition and characteristics, farm attributes incuding farm income and ocation attributes. To begin with, age and age square of the househod head carry the expected signs in a of the participation regimes. But they do not significanty affect househods participation as a buyer ony (regime h) and as a simutaneous buyer and seer of abor (regime sh).their effect on the probabiity of participation as a seer (regime h) is significant. The positive (negative) sign for age (age square) indicates that the probabiity of participation as seer increases (decreases) with age at younger (oder) ages. With regards to education eve, the resut reveas that househods with better educated head and with more number of educated members show a higher tendency to participate in abor marets as compared to sef-sufficient househods. This is in ine with some previous empirica studies (Kimhi, 1994; Zhang et a., 2008). Education of the head has a positive and significant impact on participation as a buyer and as a simutaneous buyer and seer, but not as seer ony. Furthermore, househods with more number of educated famiy members choose woring outside the farm (regime s) or suppying and hiring on farm at the same time (hs). This may be 137

6 Journa of Economics and Sustainabe Deveopment ISSN (Paper) ISSN (Onine) Vo.4, No.1, 2013 supported by the fact that an increased education eads to an increased heterogeneity between on-farm and off-farm abor, as a resut of which farmers tend to substitute hired abor for famiy abor on the farm and famiy abor in off-farm empoyment as ong as the margina cost of hired abor is ower than margina off-farm income. With regards to househod composition indicators famiy size, number of dependents and number of adut members in the famiy affect the abor maret participation choice in different ways and aso they carry the expected sign in infuencing the participation regimes. Famiy size and number of dependents have significant effect on probabiity of participation as buyer as compared to sef-sufficient househods. However, their effect on other regimes is not statisticay significant. The avaiabiity of adut aborers (those aged 15-64) in the househod has positive and significant impact on the probabiity of seing abor and invovement in both simutaneous seing and buying of abor. Most of the variabes representing farm resource endowment such as and cutivated, anima weath, annua farm income and the vaue of variabe farm inputs affect the probabiity of participation in different maret regimes differenty and most of these variabes carry the expected sign. An increase in the size of and cutivated encourages the probabiity of hiring abor (regime h) and invovement of househods in both hiring and suppying of abor. As a resut, it shows positive and significant effect in both regimes. However, the size of and cutivated has negative significant impact on participation as seer (regime s) because househods with very sma fraction of cutivated and mosty participate in seing abor. The anima weath measured in TLU has no any significant impact on any of the participation regimes, whereas, the vaue of variabe farm input has positive and significant effect on hiring and both hiring and seing but its effect is not statisticay significant in abor seing regime. The ieihood of a househod to hire abor and to simutaneousy hire (h) and se abor (regime sh) significanty increases with an increase in the amount of credit obtained, but credit does not have significant effect in participation as a seer. Simiary, the resut indicates that high annua farm income significanty reduces househods tendency towards woring outside the farm (regime s) and increases their ieihood to use hired abor when compared with sef-sufficient househods. Its impact on the probabiity of simutaneous seing and buying is not significant. Finay, with regard to ocation characteristics, there are significant ocation differences in the probabiity of participation. Specificay, the opposite sign with significant coefficients for participation as a seer (regime s) in Gida Ayana and Guto Gida districts indicate the effect of ocation differences. The probabiity of seing abor outside is higher for househods in Guto Gida district, perhaps attributed to avaiabiity of better off-farm wor opportunities in the district as compared to Gida Ayana. 5. Concusion and Poicy Impications In this paper efforts were made to anayze the determinants of abor maret participation choice of househods in rura Ethiopia using descriptive data and mutinomia ogit mode. First, existences of initia differences in factor endowments among househods were examined using descriptive anaysis of the data. Then, mutinomia ogit mode was empoyed for empirica estimation in order to identify factors that infuence househods probabiity of participation in a particuar abor maret regime. The overa resut indicated that farm househods in the study area integrate into abor marets as buyers or seers of abor in response to initia differences in factor endowments, househod composition and characteristics, farm attributes and ocation characteristics. The existences of such differentia factor endowments create differences in the margina productivity of abor across farm size, as a resut of which profitabe transaction in the abor maret is expected to occur. Therefore, initia differences in factor endowments and the resuting differences in margina productivity induce farm househods to participate in abor transactions. Besides to descriptive anaysis of how initia differences in resource endowments induce househods to participate in the abor maret, mutinomia ogit mode was fitted to identify factors that affect participation choice of househods in different abor maret regimes. The resut of mutinomia ogit anaysis reveaed that the probabiity of a househod to choose a particuar abor maret regime is reated to a number of factors that affect both the shadow wage and maret wage rates. Accordingy, variabes reated to househod composition and characteristics, farm attributes and ocation characteristics were found to be important factors that determine the ieihood of a househod to choose a particuar abor maret participation regime. In this regard, education which captures the human capita factor is important in that, in genera, househods with better educated heads and with more number of educated members show a higher tendency to participate in abor marets as compared to sef-sufficient househods. Specificay, househods with more number of educated famiy members choose to wor outside the farm (regime s) or suppy and hire abor (regime sh) at the same time. Househod composition factors such as famiy size, number of dependents and number of adut members in the famiy aso affect the 138

7 Journa of Economics and Sustainabe Deveopment ISSN (Paper) ISSN (Onine) Vo.4, No.1, 2013 abor maret participation choice of househods differenty with expected sign. Finay, farm attributes such as per capita and cutivated, variabe farm inputs, annua farm income and amount of credit are aso important factors reated to abor maret participation decision of farmers. For instance, an increase in and cutivated increases the probabiity of hiring abor (regime h) and invovement of househods in both hiring and suppying of abor (regime hs), whereas higher annua farm income significanty reduces the tendency of the househod towards woring outside the farm (regime s) and increases their ieihood to use hired abor when compared with autary. Finay, the study reveaed that the abor maret participation choice of househods difference significanty across ocations. Generay, the findings in this study concuded that farm househods in rura Ethiopia integrate into abor marets as buyers or seers of abor in response to initia differences in factor endowments. The study underines the importance of factors reated to human capita, househod composition and characteristics, farm attributes and ocation characteristics in infuencing the abor maret participation decision of farm househods in the study area. These concusions have considerabe poicy impications with regards to the distribution of the benefits that may arise from rura and agricutura investment interventions. For instance, participation in the abor maret is expected to even out the returns to abor and and across farm size casses impying the roe that participation in the abor maret pays in reaizing the tricedown effect of poicy interventions to the poorer househods. Moreover, since most farmers are seers of abor, this may contribute towards to reducing the differences in factor endowments and margina productivity of abor among househods. Therefore, measures taen to improve basic education of woring famiy members wi promote choice of seing regime and simutaneous seing and buying regimes there by creating heterogeneity between farm and off-farm abor. This wi enabe substitution of abor in accordance with its reative advantage and thus promote efficient use of abor by the househod. Acnowedgments The authors are gratefu for the financia support from the Federa Democratic Repubic of Ethiopia Ministry Education, Haramaya University and Woega University. References Awuor, Z.O. (2007). Agricutura Growth, Rura Poverty and Hunger in Africa. AAAE Conference Proceedings, Coege of Agricuture and Veterinary Sciences Department of Agricutura Economics, Ghana. Babatunde, R.O, Oagunu, F.I., Faayode, S.B. and Adeobi, A.O., Determinants of Participation in Off-farm Empoyment among Sma-hoder Farming Househods in Kwara State, Nigeria, Production Agricuture and Technoogy, 6(2), Caros, O. (2010). Rura inequaity, wage empoyment and abour maret formation in Africa: Historica and micro-eve evidence. Woring Paper, No. 97. Poicy Integration Department Internationa Labour Office, Geneva. Demee, M., Fantu, G. and Tadee, F. (2006). Towards a more empoyment intensive and pro-poor economic growth in Ethiopia: issues and poicies. Addis Ababa University, Addis Ababa. Emmanue, E. A. (2011). Rura iveihood diversification and agricutura househod wefare in Ghana. Journa of Deveopment and Agricutura Economics, 3(7), Kien, T. Le. (2010). Separation hypothesis tests in the agricutura Househod mode, American Journa of Agricutura Economics, 92(5), Kimhi, A. (1994). Quasi maximum ieihood estimation of mutivariate probit modes: farm coupe s abor participation, Ame. Journa of Agricutura Economics, 76(4), Lanouw, P. (2007). Does the Rura Non-farm Economy Contribute to Poverty Reduction? In Steven Haggbade, Peter Haze, and Thomas Reardon (eds.): Transforming the Rura Non-farm Economy. Batimore, MD: Johns Hopins University. Otsua, K. and Yamano, T. (2006). The roe of rura abor marets in poverty reduction: Evidence from Asia and East Africa, FASID discussion paper series on internationa deveopment strategies No Sadouet, E. and Janvry, A. Fafchamps (1991). Peasant Househod Behavior with Missing Marets: Some Paradoxes Expained, The Economic Journa, 101(409),

8 Journa of Economics and Sustainabe Deveopment ISSN (Paper) ISSN (Onine) Vo.4, No.1, 2013 Sadouet, E., de Janvry, A. and Benamin, C. (1998). Househod behavior with imperfect abor marets, Industria Reations, 37(1), Stephan, B. (2007). The dynamics of Chinese rura househods participation in abor marets, Agricutura Economics, 37(2007), Stefania, L. (2012). Maret imperfections, iquidity, and farm househod abor aocation: the case of rura South Africa. Agricutura Economics, 43(2012), Tassew, W. (2000). Economic anaysis and poicy impications of farm and off-farm empoyment: A case study in the Tigray Region of Northern Ethiopia. Doctora Dissertation.Wageningen University, Wageningen Tayor, J. and Ademan, I. (2003). Agricutura Househod Modes: Genesis, Evoution and Extensions, Review of Economics of the Househod, 1(1), Thomas, G., Thomas. H. and Wang, X. (2008). Labor maret participation of Chinese agricutura househods: Empirica evidence from Zheiang province, Food Poicy, 33(2008), Victor, O. and A. Awudu (2009). Non-farm Empoyment and Poverty Reduction in Rura Ghana: A Propensity-Score Matching Anaysis. Paper prepared at the Internationa Association of Agricutura Economists conference, Beiing, China, August Word Ban, Word Deveopment Report 2008; Agricuture for Deveopment. Washington, DC. Zhang, L. A., de Brauw and Rozee, S. (2003). Labour maret iberaization, empoyment and gender in rura China, in proceedings of the 25th Internationa Conference of Agricutura Economists (IAAE), Durban. Tabe 1: Factor endowments across farm size casses (absoute and reative factor endowments) Indicators of factor endowments Farm size cass (area of and cutivated) Tota and cutivated in hectares Tota and owned in hectares Tota number of adut aborers in the famiy Vaue of farm equipment owned Number of oxen owned Land cutivated per woring famiy member Land owned per woring famiy member Vaue of farm equipment per woring famiy Number of oxen owned per unit of and owned Vaue of farm equipment owned per unit of and Hired-in farm abor hours Famiy abor used on the farm in hours Tota abor used on the farm in hours Famiy abor suppied to off-farm wor in hours Source: Own computation,

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