Labor markets and labor allocative efficiency among farm households in western Kenya

This paper evaluates how efficiently farm households allocate labor between farm and off-farm activities. It estimates farm and off-farm labor supply functions to determine the factorsthat influence labor allocation. Both the shadow wage and the off-farm wage rate are includedas regressors in the supply functions. The study reveals that, on average, farm households areinefficient, but when linked to labor markets their productivity and internal efficiencyincrease. The decision to sell labor is influenced by location, and off-farm employment isdifficult to find, particularly for the better educated. Interventions should aim to increaseopportunities for off-farm employment for persons with skills or with higher than the basiclevel of education, and to reduce the cost of participating in labor markets, for example byimproving rural infrastructure. Addressing failures in rural financial markets would save poorhouseholds from having to sell their labor for less than they get from their farms.