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Abstract
In the past three decades, farm families have relied on government payments and off-farm
income to reduce income risk and increase total household income. Studies have shown that, as
income effect dominates, government payments tend to reduce off-farm labor of farm operators
and spouses. But that may not be true if one accounts for fringe benefits associated with off-farm
employment. Additionally, with looming budget deficits and the possibility of a reduction in
decoupled government payments, farm families may be facing an altered economic environment.
Our study addresses this issue by examining the links between government farm program
payments and the ever-important role of fringe benefits in the off farm employment of farm
couples. Result from farm-level data actually show that the marginal effect of government
payments on hours worked off-farm will decrease in magnitude when accounting for fringe
benefits, ceteris paribus. These results support the notion that farm households’ welfare loss
stemming from reduced decoupled payments may be overstated when models exclude fringe
benefits from the estimation of off-farm labor supply.