Agricultural productivity, shadow wages and off-farm labor decisions in Nicaragua

Abstract The objective of this study is to analyze the decision to work off-farm by male and female farmers in Nicaragua using a three-year unbalanced panel dataset. Shadow income and shadow wages are also estimated. Moreover, to mitigate biases from unobserved individual and farm time-invariant characteristics as well as from sample selection, we apply a semiparametric approach for panel data. Our main findings suggest that shadow wages play a major role in off-farm labor decisions for both males and females. This implies that less labor is allocated to off-farm activities as the opportunity cost for agricultural work goes up. In addition, as the on-farm marginal productivity of households (i.e., shadow income) rises, both males and females reduce the hours they allocate to off-farm activities.