Conservation Payments, Liquidity Constraints and Off-Farm Labor: Impact of the Grain for Green Program on Rural Households in China

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both lived and worked away from home). Forty percent of individuals with off-farm employment had
local wage-earning jobs and 18 percent were self-employed. The costs associated with migration and the
investment funds needed to start a family-owned business can be high. The high costs that would be
associated with shifting a family’s labor allocation from on-farm to off-farm jobs (or between farm
enterprises) are why we assume that poor farmers may face a liquidity constraint in the conceptual
model.¹¹

While there was a detectable increase in off-farm employment participation for both program
participants and nonparticipants, the same cannot be said for on-farm work (Figure 4, Panel B).
Individuals who engaged in farming activities (for at least some part of the year) increased by 6 percent
among nonparticipants but decreased by 4 percent among participants. The reason why on-farm labor
did not decrease as much as the increase in off-farm activities may be because off-farm jobs frequently
did not provide full-time work and individuals consequently returned to farm work periodically.

III. Conservation Set-Aside and Labor Allocation Decisions:
A Conceptual Framework

Given the interactions between factors that influence how a conservation set-aside program
affects a farmer’s time allocation, we construct a conceptual model to understand how land and labor
allocations are interlinked with liquidity and other constraints that a farmer might face. We extend the
literature on off-farm labor allocation in a household production framework by including liquidity and

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