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UBC Theses and Dissertations

The contribution of schooling to Canadian farm income Labadan, Eloisa Marcos

Abstract

The basic objectives of this thesis are to build an earnings function for farm incomes of Canadian farm operators, and estimate the rate of return to schooling. It is hypothesized that the low levels of farm income are related to the low investment in education by farm operators. If reasonable estimates of positive returns to schooling are found, they will be useful for policy makers in considering the improvement of the quality of farm operator labour via schooling, as an alternative measure to increase farm income. To achieve the goals of this study, an earnings function is built for the group of entrepreneurs, in particular the farm operators. As a test of functional form a digression is made and a value added approach discussed and utilized as an alternative way of computing the contribution of schooling to farm income. Although both methods yielded significant estimates of the return to schooling comparable to previous studies, the value added approach was found to be a better specified formulation with respect to estimating the productivity of schooling in farm production. The estimate of the marginal product of schooling using the earnings function approach was found to be higher as we concentrated on the full-time farmers. For the value added approach, the estimates differed as we varied the input specification, being higher as we decrease the number of decision variables in the estimating equation. Estimates for both models however have their respective biases and shortcomings attributable mainly to the variables omitted in both specifications. These estimates could be improved with the availability of better specified variables and use of an alternative analytical procedure. In addition to providing strong evidence that schooling is a significant determinant of farm incomes, this study also led to another important conclusion. Using a transformed labour variable in the value added function at the census division level led to an important finding that a similar output-input relationship exists in the agricultural sectors of both the U.S. and Canada. Specifically the relationship was identical for the elasticities of output with respect to labour, with respect to education (schooling), and with respect to the weighted labour variable (product of labour and schooling) values of selected years.

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