The effects of various wage rates on farm organization and structure in Southwest Virginia: a study minimizing average outlay when obtaining specified income levels

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Virginia Tech

This study was undertaken to evaluate the effects of various wage rates on the minimum amounts of resources needed to obtain specified income levels on farms in Southwest Virginia. In addition, the aggregate effects of these wage rates on the structure and organization of farms in this area was determined.

A linear programming model with added average outlay as a minimization criterion was constructed to determine the optimum resource use and enterprise combinations for' three representative farms to achieve operator labor incomes of $3,500, $5,000, $7,000, respectively.

An aggregation model was used to determine the aggregate effects of these changes on farm organization and structure in the area.

The study indicated that there are presently a large number of farms in the area with open land acreage below the minimum required to provide full-time productive employment for the operator. When available cropland is not sufficient to enable an individual to obtain a specified income, it is more profitable, in terms of minimizing average outlay, to purchase additional open land in order to obtain additional tobacco acreage and other cropland, than to utilize large amounts of existing unused pasture.

An increase in hired labor wage rates, when an individual farm is achieving a specified income, may result in the hiring of additional labor, however, added amounts of non-labor inputs would increase at a faster rate than increases in amounts of labor used.

Should all farms in the area adjust to attain the income levels specified in the study, farm numbers would decrease. An increase in the production of crops and livestock enterprises would result. This increased production would result in gross returns from the sales of crops of more than three times the amount presently received from crop sales in the area, and returns from livestock sales would be more than twice the amount presently received. This production would be produced by a total labor force of one-half, or less, the present labor force available on the farms in the study area.

The results of this analysis substantiate the results of earlier studies which indicate that capital will be substituted for labor as farm wages are increased, and, an increase in aggregate farm production can be obtained with a decrease in total farm labor utilized. A need for some type of labor-saving innovation, as increased price supports for burley tobacco, will become necessary as the price of labor and other farm inputs increase.

A study devoted to the development and analysis of some type of policy to encourage the combination of the smaller farms into larger, more efficient units is in order if all farm operators are to earn income levels comparable to that of off-farm employment. The resulting production from such a change would alter the type of farming presently conducted in the area.

wage rates