Earthbound Labor and Incomplete Exit from Farming in China: Multiple Distortions and Nonseparable Decisions

• Agricultural Economics Workshop

Date and Location

Thursday, October 26, 2017, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Smallholder farming remains the predominant production mode in China, despite massive outflow of rural labor. Policy restrictions on farmland and rural labor have been found to impede land consolidation by constraining land transfers and by inhibiting agricultural households from exiting completely from farming. However, complex policy effects on resource allocation are not fully understood. A large number of smallholders are observed to exit seasonally or partially from farming all the contract land to which they hold use rights. I develop a theory to explain the persistence of smallholder farms based upon the tendency of agricultural households to exit from farming incompletely. The theory highlights the interdependence of policy restrictions faced by Chinese farmers and the value of contract land as a safety net and an appreciable asset. It is the first to model the non-productive value of land to be simultaneously determined by the cultivation size and farm labor input. Using the data that I collected from 512 households in Southwest China, I estimate the effects of tenure security, land and labor endowments, land-based subsidies, and local wage rates on exits and resource decisions of smallholders. I also provide evidence of a wedge between the on-farm marginal productivity and the market nonfarm wage rate of part-time farm labor.