Trapped in Agriculture? Credit Constraints, Investments in Education and Agricultural Employment

Abstract

The basic neo-classical model implies that agricultural employment responds positively to increases in farm income. This argument is assumed by proponents and critics of agricultural subsidy programs in their discourse in favor of or against government support for farmers. However, empirical evidence on the relationship between agricultural employment and farm income (and subsidies) is mixed, and some studies find evidence that an increase in farm income has a negative impact on agricultural employment. This article proposes a new explanation for this puzzle. When farm income increases, part of the additional income is invested by credit-constrained farmers in their children's education and educated children are less likely to become farmers themselves. We provide a theoretical model and empirical evidence supporting this argument.Le modèle néo-classique de base part du principe que l'emploi agricole réagit positivement à l'augmentation des revenus fermiers. Cet argument est proposé par les défenseurs et les critiques des programmes de subventions agricoles, lorsqu'ils se positionnent pour ou contre le soutien gouvernemental aux fermiers. Cependant, les preuves empiriques sur la relation entre emploi agricole et revenus fermiers (et subventions) sont mitigées, et quelques études ont trouvé qu'une augmentation des revenus fermiers a un impact négatif sur l'emploi agricole. Cet article propose une nouvelle explication à ce problème. Lorsque les revenus fermiers augmentent, une partie de ces revenus supplémentaires est investie par des fermiers, limités par les contraintes de crédit, dans les études de leurs enfants. Les enfants ayant fait des études sont moins susceptibles de devenir eux-mêmes des fermiers. Nous fournissons un modèle théorique et des preuves empiriques pour appuyer cet argument.

Jobs and agricultural policy: Impact of the common agricultural policy on EU agricultural employment

“…Barkley, 1990;Petrick and Zier, 2012) and yet others find a negative impact (e.g. Petrick and Zier, 2012;Berlinschi et al, 2014).…”

“…Hence, (an increase in) subsidies may have an indirect negative impact on agricultural employment because of capital or land substitution, which can (depending on the country and/or time period) dominate the direct positive impact (the direct income effect). Berlinschi et al (2014) propose a related explanation based on education and longer-term adjustments. By increasing farmers' income, subsidies allow credit constrained farmers to invest more in their children's education and thereby their employment choices in the next generation.…”

Are Technology Adoption and Collective Action Important in Accessing Credit? Evidence from Milk Producers in Tanzania

“…In fact information asymmetries have been found to curtail the ability of microfinance institutions to achieve their poverty reduction objectives (Annim 2012). It is possible that agricultural subsidy programs for credit-constrained farmers end up as sources of household income for investing in areas such as children's education-as has been the case in parts of Europe (Berlinschi et al 2014)-rather than improving access to credit. Therefore in order to determine areas in which public investments can be made to sustainably increase access to credit by poor households, it is imperative to understand the factors that influence their access to it.…”

Russian Food Import Ban – Impacts on Rural and Regional Development in Finland

“…In Finland, a partial transfer of agricultural subsidies to regional investments increased both regional GDP and employment (Hyytiä 2014). Barkley (1990), Petrick and Zier (2012), and Berlinschi et al (2014) found that CAP had mixed or negative impacts on agricultural employment. In contrast, e.g.…”