A double hurdle model of off-farm work participation and off-farm labour income was derived and estimated consistent with a farm household model. It was found that rationing and unexpected transaction costs inhibit farm households from participating in off-farm work. The 1992 and the Agenda 2000 CAP reforms are most likely to increase the off-farm employment of arable farm households, but its full effect cannot be realised because of inhibitions to enter off-farm activities. Household and farm characteristics have different impacts on off-farm work participation and on the level of off-farm labour income. © 2000 Elsevier Science B.V. All rights reserved.