Supply and Demand Side Limitations Affecting the Structure of Agriculture and the Rural Economy. Factor Markets Working Paper No. 21, February 2012

The paper criticises the neo-classical assumptions of perfect factor markets and of complete information, which constitute central elements in labour market theory. Based on literature review and on economic reports from transition economies, as well as developing countries and more advanced economies, this deliverable focuses on the structural impediments and imperfections which often characterise rural labour markets and which may prevent an efficient allocation of labour. According to empirical studies, transactions costs and rigidities hinder the well-functioning of labour markets and constrain labour adjustments. The paper attempts to classify the various limitations of rural labour markets from both supply and demand side, although the distinction is not always clear-cut as some problems occur on both sides. The identification of these issues is extremely important as it allows us to highlight the inefficiencies and the failures in labour markets and to understand their impact on labour allocation. In this context, market intervention is desirable and the paper provides particular support for rural development policies such as investments in human capital. Lastly, labour institutions can play a key role in promoting the well functioning of labour markets, thus it is fundamental that they are well in place.

The Impact of CAP Reforms on Farm Labour Structure. Factor Markets Working Document No. 63, August 2013

The labour force engaged in the agricultural sector is declining over time, and one can observe the reallocation of labour from family members to hired workers. Using farm-level data, this paper analyses the on-farm labour structure in Greece and assesses the factors driving its evolution over the period 1990-2008. The impact of agricultural policies and farm characteristics is examined in a dynamic panel analysis. Family and hired labour are found to be substitutes rather than complements, while agricultural support measures appear to negatively affect demand for both family and hired labour. Decoupled payments and subsidies on crops are found to have a significant impact on both sources of labour, as well as subsidies for rural development that do not favour on-farm labour use. The paper also finds that structural labour adjustments are the result of farm characteristics, such as farm size and location. The results are robust to various estimation techniques and specifications.

Rural Labour Market Developments in the Former Yugoslav Republic of Macedonia. Factor Markets Working Paper No. 5, September 2011

The significant changes in the quantitative and qualitative characteristics of human resources in rural Macedonia can be explained by the continued trend of emigration from villages to urban areas and abroad. The intensity of emigration has altered the demographic structure and reproductive base of the rural population, along with the income of rural households. The rural and agricultural labour market faces a mismatch with respect to the unfavourable age, education and spatial distribution of the total labour force. A reduction in the participation of women in the agricultural labour force is a new feature. The overall transformation is apparent in the income structure of rural households. An increase in the share of households with mixed income sources notably stems from households that receive remittances and foreign currency funds from family members abroad. The demographic revitalisation of rural areas depends on economic revitalisation, with a more rational use of the labour force and human resources, as well as a restructuring of agricultural production and agricultural holdings. In addition, improvements are necessary in the functioning of market institutions to better meet the needs of smaller farmers and the rural economy.

Ownership and Investment Behaviour in Transition Countries: A Case Study of Collective and Corporate Farms in the Czech Republic. Factor Markets Working Paper No. 17, February 2012

Cooperative and corporate farms have retained an important role for agricultural production in many transition countries of Central and Eastern Europe. Despite this importance, these farms' ownership structure, and particularly the ownership's effect on their investment activity, which is vital for efficient restructuring and the sector's future development, are still not well understood. This paper explores the ownership-investment relationship using data on Czech farms from 1997 to 2008. We allow for ownership-specific variability in farm investment behaviour analyzed by utilizing an error-correction accelerator model. Empirical results suggest significant differences in the level of investment activity, responsiveness to market signals, investment lumpiness, as well as investment sensitivity to financial variables among farms with different ownership characteristics. These differences imply that the internal structure of the Czech cooperative and corporate farms will be developing in the direction of a decreasing number of owners and an increasing ownership concentration.

Drivers of Agricultural Physical Capital Development: Theoretical Framework and Hypotheses. Factor Markets Working Paper No. 18, February 2012

This paper aims to identify drivers of physical capital adjustments in agriculture. It begins with a review of some of the most important theories and modelling approaches regarding firms’ adjustments of physical capital, ranging from output-based models to more recent approaches that consider irreversibility and uncertainty. Thereafter, it is suggested that determinants of physical capital adjustments in agriculture can be divided into three main groups, namely drivers related to: i) expected (risk-adjusted) profit, ii) expected societal benefits and costs and iii) expected private nonpecuniary benefits and costs. The discussion that follows focuses on the determinants belonging to the first group and covers aspects related to product market conditions, technological conditions, financial conditions and the role of firm structure and organization. Furthermore, the role of subjective beliefs is emphasized. The main part of this paper is concerned with the demand side of the physical capital market and one section also briefly discusses some aspects related to supply of farm assets.

Determinants of Financial Capital Use: Review of theories and implications for rural businesses. Factor Markets Working Paper No. 19, February 2012

This paper presents a review of financial economics literature and offers a comprehensive discussion and systematisation of determinants of financial capital use. In congruence with modern financial literature, it is acknowledged here that real and financial capital decisions are interdependent. While the fundamental role of the (unconstrained) demand for real capital in the demand for finance is acknowledged, the deliverable focuses on three complementary categories of the determinants of financial capital use: i) capital market imperfections; ii) factors mitigating these imperfections or their impacts; and iii) firm- and sector-related factors, which alter the severity of financial constraints and their effects. To address the question of the optimal choice of financial instruments, theories of firm capital structure are reviewed. The deliverable concludes with theory-derived implications for agricultural and non-agricultural rural business’ finance.

Key Issues in Agricultural Labour Markets: A Review of Major Studies and Project Reports on Agriculture and Rural Labour Markets. Factor Markets Working Paper No. 20, February 2012

This paper provides a synthesis of the empirical literature on the key issues in agricultural and rural labour markets since 1960s, drawing mainly upon studies from the United States and the European Union, but also including relevant material from developing countries. The contribution of this meta-analysis lies in its unique structure as it covers the main research questions which have been addressed in the literature and includes the most cited papers from the American Journal of Agricultural Economics, Journal of Agricultural Economics, European Review of Agricultural Economics, Agricultural Economics as well as other reports and EU funded projects. Each research question is accompanied by tabular summaries which classify the individual studies according to the methodology and the variables employed. The heterogeneous conditions across countries, the different research questions and methodologies, and the type of data employed, have sometimes led to conflicting results. Nonetheless, by comparing the results it is possible to assess the significance and the direction of the determinants of rural labour allocation and its adjustments, and thus contribute to a better understanding on the functioning of rural labour markets. Lastly, by recognising the importance of the institutional framework, the paper provides useful policy insights.

Commonalities and Differences in Labour Market Developments and Constraints in Different EU Regions. Factor Markets Working Paper No. 22, February 2012

This paper provides a detailed overview of the differences across EU member states’ labour markets, through the extensive use of descriptive statistics. The objective is two-fold: firstly, it identifies the commonalities and differences in rural labour markets across EU regions and their developments, with special regard to agriculture, and secondly it emphasises the constraints that may hinder the efficient functioning of labour markets. Therefore, the paper starts with a description of the main indicators in the general labour market theory, such as the structure of the population in terms of age and gender distribution, unemployment and activity rates, employment levels, quality of human capital, migration patterns, and so forth. Secondly, we focus on the differences among rural and urban areas to then look closely at the agricultural sector. The institutional framework in which labour market institutions operate is also included. Lastly, as an attempt to summarise the analysis and to classify the EU member states according to certain rural and specific agricultural indicators, cluster analysis is also employed. Policy implications include investment in human capital and vocational training, support to young farmers, promoting economic diversification and upgrading infrastructure, with special regard to the new member states and to the Southern parts of Europe.

A Spatial Analysis of Agricultural Land Prices in Bavaria. Factor Markets Working Document No. 50, June 2013

This paper empirically analyses a dataset of more than 7,300 agricultural land sales transactions from 2001 and 2007 to identify the factors influencing agricultural land prices in Bavaria. We use a general spatial model, which combines a spatial lag and a spatial error model, and in addition account for endogeneity introduced by the spatially lagged dependent variable as well as other explanatory variables. Our findings confirm the strong influence of agricultural factors such as land productivity, of variables describing the regional land market structure, and of non-agricultural factors such as urban pressure on agricultural land prices. Moreover, the involvement of public authorities as a seller or buyer increases sales prices in Bavaria. We find a significant capitalisation of government support payments into agricultural land, where a decrease of direct payments by 1% would decrease land prices in 2007 and 2001 by 0.27% and 0.06%, respectively. In addition, we confirm strong spatial relationships in our dataset. Neglecting this leads to biased estimates, especially if aggregated data is used. We find that the price of a specific plot increases by 0.24% when sales prices in surrounding areas increase by 1%.