51st Congress of the European Regional Science Association: "New Challenges for European Regions and Urban Areas in a Globalised World", 30 August - 3 September 2011, Barcelona, Spain
The objective of this paper is to analyze the determinants of off-farm labor supply by heads of household and their spouses in Nicaragua. Using a three-year balanced panel dataset, we refine the approach introduced by Jacoby (1993) and Skoufias (1994) to estimate shadow wages and shadow income, and we also apply the semiparametric approach developed by Kyriazidou (1997) to panel data which mitigates biases not only from some key individual and farm time-invariant characteristics but also from sample selection. The main findings suggest that the shadow wages and shadow income of household heads and their spouses play a major role in the supply of labor to off-farm activities. When the marginal productivity of agricultural households goes up, there is a reduction in hours allocated to off-farm activities. We also find that education, age, remittances, household size, and whether sons and daughters work are related to off-farm labor supply, with significant differences between their effect on heads and their spouses.