Labor allocation in transition: Evidence from Chinese rural households

Empirical models are developed in this paper to quantitatively analyze households' participation in decisions on hiring labor and supplying labor off the farm, hired labor demand and off-farm labor supply of rural Chinese households. Econometric estimates use micro-level data from Zhejiang province over the period 1995-2002. The main results suggest that the decisions to hire labor and participate off the farm are made jointly and are positively correlated. A household's labor demand decreases with increasing wages for hired labor, whereas the effect of the wages of off-farm workers on a household's labor supply differs significantly depending on the household's kind of labor market participation. The results also indicate that the accumulation of productive assets, the development of livestock production and agricultural prices have increasing effects on labor demand but reducing effects on a household's off-farm labor supply. Land market integration enhances participation significantly but has no significant impact on time allocation. Finally, the results suggest non-separability between hired labor demand and household characteristics, indicating the rural labor market in Zhejiang province is still functioning imperfectly.