Returns from income strategies in rural Poland Jan Fałkowski Maciej Jakubowski Paweł Strawiński 20 years of transition in rural areas Dijon, October 2011

Outline Motivation Data & methodology Results In general: we investigate income returns to various occupations in rural Poland

Motivation Diversification outside agriculture high on the agenda in Poland – Rationale behind: stabilise income & absorb some surplus labour, improve efficiency of resource allocation – Rural incomes lower than urban (~80%) However: – Diversification process slower than expected – Theoretical arguments questioning benefits of nudging farmers to diversify – Since 2005 farmers income above rural average

Farm vs. rural monthly disposable income in Poland

Literature review Four strands of relevance – Impact of non-farm income on total hh income few studies for CEECs; in general ambigous conclusions (Reardon, 1997; Rozelle et al., 1999; Hazer & Haggblade, 1990; Reardon, 2000; Deininger & Olinto, 2001) – Factors dis/encouraging off-farm employment Mixed conclusions for transition countries, for Poland diversification negatively correlated with the unearned income, remote localisation and specialisation in agric. (Chaplin et al. 2004) Mostly binomial models (ignoring the whole heterogeneity of occupational choices) Focused on determinants not on outcomes

Literature review (cont.) – Off-farm labour supply of farmers (Huffman, 1980; Kimhi, 2000) Evidence on CEECs scarce (Goodwin & Holt 2002; Juvancic & Erjaves, 2005) Conclusions quite unanimous: crucial importance of personal characteristics and household attributes – Agric. labour adjustments during transition Heterogeneity of labour adjustment patterns (Swinnen et al. 2005) In Poland: regional differentiation (Dries & Swinnen, 2002) No micro-foundations

Motivation cont. Impact of diversification on income ambigous There have been some work on barriers to diversification but: – Hardly any attempts to compare returns to various income strategies There have been some work to identify labour adjustments in rural areas but: – Hardly any attempts to explain them with micro data

Research questions How have the returns to various income strategies in rural Poland compared to each other during transition period? How has this comparison changed with the accession to the EU? Practical reasons to know the answers: – To better understand the situation of 38% of Polands population – To evaluate the rationale for govt. programmes encouraging farmers to diversify – To inform the discussion about the new Rural dev. policy both in Poland and in the EU

Data Household Budget Surveys covering the period – Important part of the transition – Including pre- and post-accession periods Possible to analyse the impact of CAP both in absolute and relative terms ~ obs. each year (only rural hh) Detailed data on incomes & expenditures – A drawback: impossible to distinguish between different agric. enterprises Not possible to use panel-data techniques

Data cont. We classify households according to their main source of income We distinguish between: – Self-employed (outside agriculture) – Off-farm (solely on hired off-farm) – Farmers (solely on farming) – Diversified hh (combining farm and off-farm income) – Unearned income (pensions + allowances)

Methodology Problem: people might self-select into different occupations Solution: we use propensity score matching – We compare households that are similar to each other in terms of observable characteristics but earn their living from different income sources

Results To assure representativeness of the results, differences in incomes adjusted by household probability survey weights To control for potential outliers we trimmed the sample excluding 1% of obs. (up & down) Drawing on the literature, propensity score based on: – Hosueholds human capital; demographic composition; regional dummies

Earning premium for rural households relying solely on farming in comparison to other income strategies (1998 to 2008, in PLN per capita).

Earning premium for diversifying households (combining farming with off-farm employment) in comparison to other income strategies (1998 to 2008, in PLN per capita).

Results (cont.) We repeat this exercise but with expenditures (not incomes) => results are the same We further investigate the role of unearned income & human capital

Unearned income

Human capital for households with relatively high human capital endowments off-farm employment seems a financially attractive possibility to farming (no stat. significant difference) any other strategy that relies on government transfers or on mixing of farm and off-farm income sources is far less beneficial

Human capital (cont.) For medium educational level, – diversification still provides smaller remuneration than farming and off-farm – Since 2004, off-farm is also worse than farming For lowest educational level, – Until 2004 diversification and off-farm provide similar returns as farming – Since 2004, farming is certainly the most profitable

Results (cont.) We further investigate the role of land resources and land and human resources together – On average farming provided higher remuneration than diversification, – this difference is quantitatively small and statistically insignificant for households with lowest education level and little land assets

Concluding remarks Over the period farmers lacked financial incentives to (partly) quit from agriculture 2004 provides an important dividing line: following this year farmers incomes improved both in absolute and relative terms