Demographic and structural effects on labor demand in incomplete markets: Testing “Separability Hypothesis” in Turkish agricultural labor market

Complete markets play an important role in terms of farmers’ response to price incentives and efficient resource allocation. The existence of market failures in rural labor markets can be tested by examining whether the quantity of labor demand is influenced by the household characteristics. By applying existing approaches to separability tests in the literature with a rich rural household survey, this paper suggests that the household characteristics in rural Turkey have an impact on labor demand. Further, we link the nonseparability to some well-known structural problems of Turkish agriculture such as hidden unemployment and small and segmented lands creating constraints on economic decisions. According to our findings, the test fails to reject the separability for relatively larger farms and we do not reject separability for a sub-sample of households having off-farm employment opportunities.