Off-farm labor supply and the role of rainfall: A case study in Tigray, Northern Ethiopia

This paper addresses the question what off-farm labor supply determines and, more specifically, what is the role of rainfall and rainfall variability therein. Answering this question is important in order to gain better insights into the process of how households deal with income variability. To answer this question the discrete off-farm work decision and labor supply function were modeled for a sample of Tigray (Ethiopia) farm households observed in 1996-1997 and 2001-2002. A probit model was used to estimate the off-farm work participation model and a Hausman-Taylor panel data estimator was applied in estimation of the labor supply model. Results confirm that rainfall variability and low rainfall amounts increase the probability of off-farm labor supply. Off-farm labor supply is an income smoothing strategy followed in response to rainfall variability. Also wealth, in the form of large livestock, are alternatives for off-farm labor supply to cope with income variability.