View of Leisure and farmers’ welfare in changing conditions

Leisure and farmers’ welfare in changing conditions

Jukka Kola and Sanna Sihvola

Kola,^J.&Sihvola, S. 1994.Leisure and farmers’ welfareinchangingconditions.

Agricultural ^ScienceinFinland3; 1-14. (Departmentof Economics andManagement, P.O. Box27,FIN-00014UniversityofHelsinki,Finland.)

This paper examines thebackground for leisure-labour decisions in agriculture and evaluates welfare effects ofashiftinfarmers’ relief services fromastate-led subsidised system to a market mechanism. Leisure provided byrelief services in agriculture contributes to well-being, but the leisure-labour choice also influences therevenue.

Besides conventional economic anddemographicfactors,weemphasizetheimportance ofspecial biological bindings andcontinuity,aswellasrisk anduncertainty affecting farmers’ time allocationinagricultural production.We consider structuraldevelopment as anaggregate factor toexplainthe demand for farmers’ relief services.InFinland the organisationof the services ismorecentralized thaninthe other Nordic countriesorthe EuropeanUnion.Ifgovernment subsidies for relief serviceswereremoved anda^market mechanism with free price formation adopted, direct governmentsavings would be more^{than enough} to compensate for substantial losses to farmers.Moreover,market forces couldproduceeconomicefficiencyand localflexibilityofahigher degree.State subsidization may still be needed tosome extentinchangingconditionsin order to enable the relief services todevelopandserve as asupport system ofasocial,de-cou- pled,and lessdistortingnature.

Key words: agriculture, social security,reliefservices, allocation of time, welfare economics,Finland

Introduction

Almost30 years ago, Gary S. Becker (1965)^wrote in his seminal workonthe allocation of time that"...

the allocation and efficiency of non-working time may now be moreimportant to economic welfare than that of workingtime; yetthe attention paid by economists _to the latter dwarfs any paid to the former." We dare to suggest that Becker’s argu- mentis still very valid especially in the agricultural sector. Because interesting special characteristics of agriculture havenotbeen assessed adequately in leisure-labourstudies, ourarticle makesan attempt torespond to an obvious needto evaluate welfare implications of leisure in agriculture.

The ultimate purpose of economic activity is^to satisfy human needs and thereby increase welfare.

The need forrestand leisure is determinedon both the biological and social basis. Demand for leisure and e.g.^accesstorecreational marketarealso influ- enced by economic activities. The task of social welfare policy is to allocate welfare among the members of the society equally and with justice.

Farmers’ relief servicesrepresent social welfare policy of agriculture. The policy aimsatimproving the social position of agricultural population. Spe- cially arranged relief servicesarealso intended ^to increase farmers’welfare,when they provide farm- ersthe possibility for leisure and recreationaswell asrecovery in caseof e.g. sickness and accidents.

Farmers’ social security has been promptly devel- oped duringrecentdecades in Finland.

Today,however,there arevarious obstacles pre- venting social welfare policyas awhole from being developed further. Budgetary constraints in dire economic recession and deepstateindebtedness do not allow growingcosts in social welfare policy.

Uncertainty of the fate and shape of Finnish agri- culture under bothinternational, e.g.European in- tegration and the General AgreementonTariffs and Trade (GATT), and domestic pressures affects farmers’ social security systems.In practice, strict economic realities require restructuring in the wholesystemof extensive social welfare policy.

To beginwith, this article examines the welfare aspects of farmers’ relief services thatareused to provideaccesstoleisure and recreation for farmers.

The choice between leisure and labour is ap- proached through the theory ofconsumer choice, the indifference analysis, and welfare economics.

We make an attempt ^to extend the standard theo- retical framework of wage-earners’ leisure-labour choicestospecial characteristics of agriculture and farm enterprises. Secondly,we outline thecurrent stateof relief services inFinland, and take abrief lookatthe determinants of demand for and supply of leisure/relief services in changing conditions.

The welfare economics approach is employed in the empirical part to evaluate the effects if relief services have tobe organised,financed, and priced differently in the future. Finally, wedraw conclu- sions _on the welfare implications and applicable development strategies in changing conditions.

Welfare and farmers’ relief services

The economic welfare status ofan individual is formally given by the individual’s utility level. The utility level ofan individual dependson bothmar- ket and nonmarket goods and services. Conse- quently, the state of welfare is affected by e.g.

socio-economic political system, culture, environ- ment, and traditions. A difficulty with utility, or economic welfare is that it is not an observable variable. Thus, in addition toobvious conceptual ambiguities in terms of meaning,contents and di-

versity of welfare (e.g. VonBergmann-Winberg

1987), this _causes measurement problems.

Economic surpluses have been definedtofacilitate measurementsfor welfare (Justetal. 1982). Meas- urements involve inherent pros and _cons. Con- sumersurplus (CS)canbe usedtomeasurewelfare effects dueto, say, changes in opportunity to use recreational services, e.g. farmers’ relief services.

Ordinary CS is definedas a geometricarea above the price line and below the Marshallian demand curve,and itcanbe presentedasfollows:

Qe

CS ⁼

J

^(D(Q)-pe)dQ

O

where p is price,

Q

quantity, D(Q) the demand curve,and^edenotes equilibrium values.Quasi-rent, theexcessof gross receiptsovertotal variablecosts, is often used torepresent producers’ net benefits.

Geometrically, producer surplus (PS) is the area below the price line and above the supply curve.

Thisareais(samenotationas above, exceptS(Q) is the supplycurve):

Qe

PS ⁼

J

^(pe-S(Q))dQ

o

The classical theory of consumer demand is based onthe assumption thatconsumers maximise their utility subject to the budget constraint. Con- sumer’s utility is often related to the number of goods consumed. Becker (1965) revised the the- ory of choiceby systematically incorporating the allocation of time in the traditional theory ofcon- sumerbehaviour. If leisure time is the time that remains when the time for sleeping, eating, work- ing, schooling, and housework has been deducted, the following division is applicable^(see.e.g.^Lilja

1982):

- the time for human physical needs: necessary ob- ligations

- the time for wage earning and education: accepted obligations

- the time for housework

- the time for leisure

The division is not unambiguous. Subjective valuations may distort it. The individual may per- ceive so-called productive consumption (Becker

1965)asleisure. Thiscausesobviousmeasurement problems. E.g. in farm households the line be- tweenhousework and ’pure’ productive activities is vague, indeed.

Leisure becomes a more significant contributor to well-being when economic welfare in general increases. Mostfarmers, too, are ^notwilling toput seven-day weeks throughout the year in order to maximise profits. Conceptual analyses of labour supply and the relation between income and leisure arefamiliar examples ofeconomics textbooks (e.g.

Rosen 1985, Varian 1990, Hirshleifer and Glazer 1992). Owen (1971) and Liua (1982) represent examples of empirical analyses of demand for leisure. In agricultural economics, evenconcep- tual analyses (e.g. RITSON 1980)have been^rare,and empirical applications almost non-existent.

Common problems in analyses have been e.g. the opportunity cost ofleisure, the relation between profit maximisation behaviour and leisure,and the possibility of_abackwards-bending labour supply curve.It is especially difficult^todetermine farm- ers’ income/leisure choices because of the delicate line between labour and leisure in entrepreneurial activities inafarm firm. Different characteristics of entrepreneurship and employees, seasonal varia- tion,versatility, and highengagementof farm work make comparison of working hours between farm- ersand wage-earners difficult.

The point of departure in analyzing demand^for, orexpressed in the opposite way, supply of labour is the theory ofconsumerchoice. Supply of_alabour input is determined by the difference between a certain fixed time constraint and demand for lei- sure. Demand for leisure follows thecommon de- terminants of demand for consumergoods: demand is determined accordingto the exogenous income and the prices of goods. The choice betweencon- sumer goods (c) and leisure (L) that maximises consumer’s utility can be written asfollows (e.g.

INGBERGetal. 1986):

maxU ^=u(c, L) s.t. c⁼(TL-L)w +M, c,L

where TL is the total time endowment availableto consumer,TL-L is the supply of labour input, w is the wagerate,and M is exogenous income.

General conclusions from the model of con- sumerchoicearethat leisure is regardedas anormal good, i.e. consumption of leisure rises withincome, and supply of labour increases with wage,atleast in someincome brackets (INGBERGetal. 1986).Com- mon sense may suggest that high unemployment, which currently burdens many western European economies, may influence the demand for leisure and price ofcommercial recreation. Infact, Owen (1971) has included the unemployment rate as a determinant of the price for leisure:

p_L⁼w(l-kE)

wherepLis price for leisure,w is the wagerate,E is the unemployment rate, and k is a constant (o<k<l/E). Bydefinition,the higher the unemploy- ment rate, the lower becomes the price of leisure.

Growingunemployment today calls special atten- tion to this finding also in connection with the opportunitycostof leisure for_afarmer.

Inafarm enterprise, RITSON (1980)assumesthat adecision_toacceptlower farm income inreturnfor less strenuous farm work is quite rational behav- iour. In fact, depending on aperson’s preferences, it is possible to want toworkmore,lessorthesame amountafter being subjecttoareduction in income.

The individual’s choice and preferences between work-related income (M) and leisure(L) can be examined by indifference curves. They are as- sumedtobenormal,convex-to-the-origin indiffer- ence curveslabeledUi^{(Fig. 1).}The straight lines between M- and L-axisrepresent the budgetcon- straint. If the individual is price-taker with respect tothe wagerate (w),the budget line has aconstant slope AM/AL=w. In the budget line the price of_an hour of leisure is its opportunity cost, which is actually the wage. At the maximum utility point

G°,

the individual spends OLg hourson leisure, works LcLmax ^{hours,and earns incomeOMg. In a shift} along_agiven Ui,the utility level remains thesame asthe individual is indifferent among the various bundles of income and leisure.

Changes in work-related income, e.g. the wage

rate, affect the individual’s choice. If wage rises, the opportunitycostofanhour of leisure increases.

The budget linerotatesup around theoriginal posi- tion,in which M iszeroand L isatmaximum, and ahigher wagerate is associated withsteeperbudget line (Fig. 1).A price expansion path ^(PEP),consist- ing of all points of tangency between the budget lines and indifferencecurves, is generated by the successive optimum positions G^l. With the lower wagerates, the PEP has anegative slope indicating that_morelabour is offeredatthe expense ofleisure.

In arange ofsufficiently higher wages, the PEP may reach _a positive slope. Then the individual choosestowork less.

The effects of the PEP can clearly be seen in agriculture,too. Today farmers _{operate ata}higher wage level than earlier farmer generations due to e.g. better productivity. Less work is required ^to reach thesame income level as earlier, and more leisure is attainable without economic losses below the minimum satisfactory income level. Many people prefer more leisure to labour even at the expense ofprofit, provided thataminimum_accept- able income levelcan be maintained.

Changes in non-labour income also affect the individual’s choice. As endowed incomeincreases, the budget line shifts upward parallel^toitself,given w is held constant(Fig.2).Thus, an income expan- sion path(lEP) is generated by the successive opti-

mumpositions

G 1

correspondingtoPEP in figure

1.

The positive slope of the lEP is duetothe assump- tion that M and L arenormal goods: the optimums G 1 show that both ^more income and ^moreleisure will be chosen.

lEP effects relatedto agricultureareobviouson Finnish farms possessing considerable forest re- sources as a source of semi-or entirely endowed income. Demand for and price of timber is crucial for the utilisation of this income.Moreover,dueto the biologically continuous production process, farm and forest income flowscanbe maintained for periods of certain length even without farmer- owner’s labour input.

Besides economic factors, preference to more leisure among farmers has occasionally been attrib- uted to changes in attitudes between generations.

Although _webelieve that_{a more}rational explana- tion is provided by thePEP, wealsowant tosuggest that the preference issue could bemore valid with respecttosexesin particular. A wife’s indifference curve canbe different from that of her husband’s.

Inafarmer couple, the other spouse, usuallya wife, in additiontofarmwork, is oftenmoreresponsible for household work and taking care of children.

Hence, additional leisure time may have a stronger weight in her utility function. She isnotindifferent among work-related income and leisurein thesame way asher husband. This situation may explain to Fig. I. The decision between work-related income and lei-

sure: price expansion path^(PEP).

Fig. 2. Effects of increases in endowed income: income expansion path(lEP).

some extentthe willingness of women’s organisa- tions toexamine farmers’ relief services in Finland and Europe.

Trade-offs betweenafarm firm’s economicre- sult and anentrepreneur’s leisure involve substan- tial risk elements. These risks _areabsent inawage- earner’s, andeven in many entrepreneur’s labour- leisure decisions. Biological characteristics ^of farming often require the continuation of produc- tion activities and inherentcosts andreturns. Pro- duction has ^tobe takencare of and managed with-

out breaks on farms, whereas discontinuation is possible in many other enterprises. The biological continuation of production suggeststhat thereare no foregone earnings due to production breaks in case leisure time is increased. However, foregone earnings can appear through incorrect operating and managerial decisions made by the substitute labour force hiredonfarms. The opportunitycostof additional leisure hastobe evaluated carefullyac- cording to e.g. the degree of specialisation on farms, and how skilled replacement workers are available labour is not of uniform quality. Al- though leisure is commonly regarded as a normal (superior) good, the presence of risk and uncer- tainty in agriculture may actually lead toleisure- averse behaviour among farmers: risk-averse farm- ers are easily leisure-averse,too. Hence, the tradi- tional price and income effects usually assumed to increase demand for leisure may not remain en- tirely valid in agricultural production possessing certain special characteristics of e.g. biological bindings and continuity.

Farmers’ relief services inFinland

Historical development

Women became first active in paying attentionto the need for leisure and holiday arrangements and, consequently developing the relief services in Fin-

land. Thiswas thecasealso in the EC through the women committee of Comité des Organisations Professionelles Agricoles, COPA ^(Flandin 1991).

In the early

1960 s Finnish

^{farmingwomen started}

insomeregions arelief service program on avol-

untary basis in order toalleviate leisure needs of farmwomenmainly engaged in animal husbandry.

In the late

1960 s

wage-earners’ weekly working hourswerereduced and the holiday money allow- ance increased in ordertoimprove their social and health conditions. This increased the disparity of holiday benefits between farmers and wage-earn- ers. In ordertoredress the disparity, acommittee (Maatalousväestön ja pienyrittäjien lomakomitea 1973)was founded toexamine possibilities tode- velop annual holiday and other leisure arrange- ments for small entrepreneurs andfarmers, espe- cially those engaged in livestock production.

The first law concerning annual holidays entered into force in April 1974, and the law concerning substitute helpnextyear. Theexperimental weekly days-off scheme became regular and extended to coverthe wholecountry in 1985. Thepresent con- tents of the relief services of farmers are basedon the act and statute of relief services, ^{which have} been revised several times mainly in ordertoextend benefits and the applicationarea.Today, thesystem includes relief servicestofarmers in thecaseof_an annual holiday and weekly days-off, and substitute help in thecaseofillness, accidents, rehabilitation, military serviceor maternity.

The presentstate

The annual holiday systemis intended for farmers less 65 years of age who ^are actively engaged in animal husbandry ofatleast four animal units. Only two persons are entitled to holidays _on the same farm. The maximum amount of days with relief services available is 22. Although the number of farmers entitledtoaholiday has^decreased,the total number of days done in the system has actually increased in the 1990

s

^duetothe rise in the number of days per farmer (Table 1).

A farmer who is entitled to the annual holiday system is also entitled to the weekly days-off scheme,which has been developedtorelieve farm- ersengaged in animal husbandry from being con- tinuously tied to their work in the enterprise. A farmer is entitledtothe maximum of 12 days offa year. The common 65 years of age limit applies.

Table 1.The extent of the annual holiday ^system for farmersinFinland in 1974-1992.

Holiday period Number of farmers Number of days done inthe system¹¹ The holiday right»'

entitled to holiday^ll ... „

Altogether Per farmer

1974/75 130018 780 000 6.0 6

1975/76 162 893 1620 000 10.0 10

1976/77 163 556 1630 000 10.0 10

1977/78 158 480 1 391 000 8.8 10

1978/79 160 158 1 360 000 8.5 10

1979/80 ¹⁵⁷408 2 121 000 13.5 14/12^2'

1980/81 157 925 2095 000 13.3 14/12

1981/82 153 798 2050 000 13.3 15/13

1982/83 150 490 2000 000 13.3 15/13

1983/84 144 682 1910 000 13.2 15/13

1984/85 139 961 1849 000 13.2 15/13

1985/86 132 852 1796 000 13.5 15/15

1986/87 124921 1798 000 14,4 16/16

1987/88 116 223 1 790 000 15.4 17/17

1988/89 104 618 1 728 000 16.5 18/18

1989/90 101 878 1 729 000 17.0 19/19

1990/91 98 199 1 828 000 18.6 21/21

1991/92 91 942 1 888 000 20.5 22/22

11Sources: the statistics of the Ministry of Social and Health Affairs

2^>Primary/secondaryperson entitled to holiday

Farmers contributetothe costsof the^scheme,and theamounts are determined accordingto thenum- ber ofreplacement hours and animal units.

Farmers younger than 65 years of age can get substitute help in thecaseoftemporarydisabilityto perform necessary farm activities. The substitute helpsystemismoreextensive than the annual holi- dayorweekly days-offsystems,because in practice all farmersare included in thesystem.E.g. illness, an accident, maternity, professional training and adult education ofafarmerorhis/her spouse entitle tosubstitute help. The farmer pays for the substitute help and theamountsaredetermined by the munici- pality according ^to the farmer’s income level. In

1991,24 000 farmers used substitute help.

Organisation andfinancing

The Ministry of Social and Health Affairs is re- sponsible for the suprememanagement and moni- toring of the annual holiday, weekly days-off and

substitute help systemsof farmers in Finland. The administrative board has the corresponding task in the provinces. In the municipalities the reliefserv- ice boardsarethe executive instances responsible for the practical organisation of the services. A municipalitycanorganise the services by employ- inganadequate number of replacement workers by itselforin cooperation with other municipalities. It canalso purchase services from another municipal- ity or other public orprivate service supplier. In exceptional cases areplacement worker acquired by the farmer himselfcanalso be accepted.

In 1991 therewereabout9 500 full-timereplace- ment workers, whose share of all days donewas about70 percent. On the average, therewere 9.5 farmers entitled ^to annual holiday per a replace- mentworker in 1991. In 1985, the corresponding figure _was24. Both the increase in the number of replacement workers and the decrease in thenum- ber of farmers has contributed to the beneficial development. Of all animal husbandry farms, 75 percentused relief services in 1990.

The farmers' relief services and their administra- tion is financed through thestate budget. Agricul- ture hasacollective responsibility forpart of the costs through farm income. It is realised in the annual farm income negotiations between the^state and the farmers' unions.

In the farm incomeagreements the significance of the social policy as awhole has increased during the recentyears. It has been easier politically ^to raise farm income through social policy measures than through higher targetprices (Fig.3).

In the negotiations half of the increase in the number of holidays andonefourth ofother increase in the appropriations for this purpose is regarded as contributingtofarm income. Accumulatively, farm income originating from the annual holidaysystem is FIM 330.6 million (Table 2),or0.4 percentofthe total farmincome,in 1974-1991.

The substitute help system is financed by the state, the collective input of agriculture, and the individualuser payments. Thepayments are taken

Table2. Thecosts,^{the share}regarded asfarmincome, and user paymentsof the farmers’ relief services inFinland in 1974-1991.

Year The closing of the accounts Regardedas farm income FIMmill²⁾

Userpayments FIM ^mill.’) ofthe ^state,FIM mi 11 ^.2)

Annual Substitute Weekly Annual Substitute Weekly Substitute Weekly

holiday help days-off holiday help days-off help days-off

1974 50.0

1975 120.810.0

1976 130.014.0

1977 133.017.5

1978 130.016.3

1979 217.030.0

1980 261.044.0

1981 247.534.6

1982 369.773.1

1983 400.6122.8

1984 409.7156.4

1985 452.7190.8 23.3

1986 492.2185.5 28.4

1987 564.5214.5 37.6

1988 605.7236.8 42.5

1989 688.0e 271.4e 46.9e 1990 761.2e 318.4e 60.8e 1991 886.2e 456.4e 91.9e

25.0

35.02.5 5.01.0 0.00.0

0.00.0 1.4

43.54.0 1.9

14.03.0 2.5

-12.4 -2.32.3

47.110.0 4.1

8.312.8 6.2

4.03.0 9.3

10.36.0 5.715.2 8.3

20.77.7 27.016.8 10.3

12.1 -1.2 -14.018.4 11.0

23.45.3 4.017.1 12.6

50.311.8 1.416.5 12.4

25.126.7 6.225.0 15.6

19.23.8 4.229.0 15.6

e⁼estimate

11Since 1989,the closing of the accounts has been compiled under the samesubsection for thesystems of annual holiday, weekly days-off and substitute help. The division of the closing of the accounts between annual holiday, weekly days-off and substitute help is based onthe estimation of the Ministry of Social and Health Affairs.

2>Sources: the closing of the accounts of the state, and the farm incomeagreements in 1974-1991.

31 Sources: the Ministry of Socialand Health Affairs and the Agricultural Economics Research Institute.

Fig. 3.The division between themeansofcompensation in the farm income agreements in 1980to 1992 inFinland.

Source:The farm income agreements.

intoaccountasagriculturalcostand theycoveronly 7 per cent of the total costs of the system. One fourth of the annual increase in the appropriations for thissystem is regarded asfarm income in the negotiations. Accumulatively, farm income origi- nating from the substitute helpsystemis FIM 94.1 million(Table 2) in 1975-1991.

The share of the _payments of farmers in the weekly days-off scheme has been about 25 percent of the totalcosts.In the farm income calculation, thepayments are taken intoaccountasagricultural cost, and the annual increase of the appropriations in full as agricultural income. In 1985to 1991, the accumulative sum considered farm income was FIM 34.5 million in this system (Table 2). Until 1991, thesumconsidered farm income of all relief service systems together was FIM 459.2 million.

The state alsocompensates the municipalities for their necessary operating costs of organising the relief services. In thecase of administrativecosts the municipalitiescan usethe general-purposestate allowance,whichcovers31-64 percentof the total costsdepending on the classification by economic

solvency of the municipality.

In the extentand organisation of farmers’ relief services thereareclear differences between the EC and Finland. The EC member^states have mainly organised the services inadecentralised wayatthe local level with private law authorities (Flandin 1991). Naturally, the system varies _country by countryin the Community, buta common factor is the regional orinfra-regional level. In^Finland,and in the Nordic welfare states in general, the _state plays _{a more}centralrole, anda social emphasis is stronger. Yet, the private sector has been more significant in Norway and Sweden than in Finland in organising the services.

Determinants of demand for leisure and relief services in Finnish agriculture

The usual determinants of demandarethe price of a good, and related goods, income level, prefer- ences,and population incase ofaggregate demand.

Effects of these factors_on quantity demanded_can be quantitatively estimated in ordertoobtain elas-

ticities ofownprice, cross-price, and income. Lack of consistent data is_a usual hindrance_to quantita- tive estimations.

Yet, equally important here is to consider the changing conditions in _terms of e.g. anticipated revisions in regulations and administration of farm- ers’ social security system, and persistent uncer- tainty in agricultural development. E.g. farmers’

income development has been unfavourable during the recent years, and the future development de- pends crucially on decisions with respect to EC membership and GATT negotiations. Kolaetal.

(1992)expect adrastic drop in farm income dueto the application of the Common Agricultural Policy CAP. The situation is aggravated by anemerging financial crisisonhighly indebtedfarms,especially pig farms. Thus,PEPorlEP effectsondemand for leisurearenotclearonFinnish farms facing chang- ing operating conditions.

Structural development and changes in farm population are among thekey factors determining theextentof demand for relief servicesatthemacro level. Naturally, structural development also de- pends onmicroeconomic factors affecting farmers’

decisions. Yet, a considerable degree of wider socio-political _aspectsand plain demographic fac- torsprevail. Structural development has been rapid in Finland: there were331 000 farms in 1959, but only 129 000 active farms in ^1990,or91 000 milk suppliers, who_are primary _users of reliefservices, in 1980, and 35 000 in 1992.

Even thoughnotcorrelated inadirect proportion, the number of farmers entitled_toholiday schemes has also decreased continuously since the late 19705, and atafaster pace in the

1990 s

^{(Table I).}

The division and development between different lines of production is also important, becausere- lief services are primarily intended for livestock farms.

Although the objectives of the Ministry of Social and Health Affairs would indicate longer holidays for farmers, i.e. annual holiday of 30 days and weekly days-off of24 days,weregard statusquoa morelikelysituation,especially concerning budget constraints and economic uncertainties. In orderto evaluate expenditure and budgetary implications, rough prediction on structural development is not

sufficient but reliable predictions on inflation, prices ofreliefservices,and administration (organ- isation) and efficacy of social security services would be needed. This is atask for another study, however.

In spite of ourrecognition of special charac- teristics of farming,weemphasize the role of price in determining demand for leisure and reliefserv- ices in changing conditions. The PEP and lEP should be taken into consideration. In fact, it is interesting that the _extent of and expenditure on farmers’ holiday schemes have increased^(Table 1 and 2). This is due^to, firstly, better availability of services because of e.g. legislative changes and more relief workers with better qualifications and continuity,but,secondly, also farmers’ higher will- ingnesstouseservices because ofe.g. PEP and^lEP effects. After^all,the social and biological need for relief services remains very much intact, because the length offarmers working hours have remained almost unchanged during the last decades (Niemi and PÄÄKKÖNEN 1990). Technological advances have evidently reduced the physical exertions, but new responsibilities and requirements for special skills and knowledge have emerged.

Price also affects the supply of relief services. As budgetary constraints become tighter, higher cost efficiency is also required in organising farmers’

relief services. Thestateand municipalities, which have this far been responsible for arranging the services, canincrease efficacy through changes in organisation and financing. Savings are searched for,and if executed they will also affect the price of and demand for services. The centralmeansto di- vide costs more equally between farmers and the state are anincrease ofpayments in thesystemsof substitute help and weekly days-off. The Ministry of Social and Health Affairs has estimated that the increases couldsaveFIM 124million, but reduce the _use and employment opportunities of the sys- tems (Table 3).

The changes in themost extensive system, i.e.

annual holidays,are morecomplicated_tocalculate because the division of financing is decided in the farm income negotiations (Table 2). The Ministry has, however, estimated thata mereFIM 100 mil-

lion of savings would imply asubstantial loss of

Table3.Effects of increaseduser paymentsinfarmers’ relief services.

Substitute help Weekly days-off Raise in user

payments FIM 20(38%) FIM 60^(48%) Decreasein demand 204000days 40 500days

for services (25%) (25%)

Decreasein demand 900 working 190working forrelief workers ^{years years} Savings (excl.

[unemployment

effect) FIM 103 million FIM 21 million Source: Lomituspalvelutoimikunta 1993.

1 750 working years for relief workers in the annual holiday system.Implied job losses would be detri- mental innumerousagriculture dominated munici- palities, in which the unemploymentrate exceeds even the exceptionally high national average of 19 percent.

Because farmers’ relief servicesarebeing devel- opedas a partoffarmers’ social security in the farm income negotiations, the political economy of deci- sion making affects crucially the organisation as well asdemand for and supply of relief services.

The pressuretoreform the organisation of farmers’

relief services in Finland became apparent in late 1992 when the governmentplannedto cutthestate financing of services by FIM 800 million in 1994- 95. Yet, the final reduction was FIM 200 million.

The _amount and distribution of_costs of theserv- ices, and the degree of the reform are decisive factors in the reorganisation offarmers’ reliefserv- ices. In the following chapter weevaluate the wel- fare implications ofathorough reform in farmers’

relief services.

Welfare implications of reformed relief services in Finland

The effects of the changing organisation and fi- nancing of farmers’ relief services from the state- led,subsidisedsystemtoaprivately organisedmar- ket mechanism are examined quantitatively by

Table4.Quantitiesof relief services demanded and supplied and changesinsurplusesof farmers and service suppliers atdifferent price levelsin thesystem of reformed relief services.

Price ofholiday Quantity supplied Quantitydemanded Changeinfarmer Changeinservice (FIM/day) (mill, days) (mill, days) surplus (CS) supplier’s surplus

~I ^{■ “ :} (FIM mill.)

Total Per farmer (FIM mill.) entitledto holiday

(FIM)

400legalmin 1.7 2.5 44.2 449.7 -32.2

418basis 1.8 2.4

495equilibrium 2.2 2.2 -176.1 -1 793.1 153.7

650^legalmax 2.8 1.8 -482.6 -4 914.8 541.7

evaluating the changes in economic surpluses of producers andconsumers.The_governmentobtains direct savings when its expenditure on and inter- vention in farmers’ relief services areremoved.

Magnitude of the effects of price changes on supply of and demand for relief services depends_on price elasticities. Changes in economic surpluses indicate income transfers realised between suppli- ersof the services andconsumersof reliefservices, i.e. farmers. If implementation ofapolicy instru- ment causes disequilibrium between supply and demand, resource allocation is sub-optimal. Con- sider the present state-led system, in which the averageprice ofarelief service wasFIM 418 per day in 1990(Sihvola 1992).This subsidised price easily leads to a situation, in which demand for services is higher than supply of them (Table 4).

Primarily, FIM 418represents the costof_aservice supplier, i.e. thestate.In the state-ledsystem there werealso the minimum and maximum pricelevels, i.e. FIM 400 and 650 in 1990,respectively.

There are evident problems to estimate price elasticities of demand for leisure and supply of relief services in this particularcaseof farmers and agricultural production. Hence, as the starting point, we employ the price elasticity ofdemand, q⁼-0.65, from^Nyberg’s(1979) results ofaRot- terdam_type model (Theil 1975), andassume the price elasticity of supply of farmers’ relief services tobe unitelastic, e ⁼ 1.0. Because of the obvious uncertainty withrespect to the elasticities, the_re-

suits of the analysis should be interpreted withcare and onlyas anindication of directions and magni- tudes ofeffects ofcertain changesorpolicy actions.

However,the uncertainty is mitigated and applica- bility of the forthcoming results is improved byan essential sensitivity analysis (Table 5).

In orderto estimate the welfare effectswe em- ploy constant elasticity demand D(p) and supply S(p) functions ofaCobb-Douglastype, where q ⁼ output, a ⁼ constant, p ⁼ price of relief services faced by both producers andconsumers,q⁼price elasticity ofdemand, e⁼ price elasticity ofsupply:

D

(p);

^{q =}

a,p3

^{S (p): q =a}₂

p^

The equilibrium price, when D(p)⁼S(p), isFIM 495 in the reformed market system. We use this price, the actual 1990 price as a basis, and the legislatively set minimum and maximum price levels of the state-led system in 1990 _as outer boundariesto calculate quantities of services sup- plied and demanded (Table 4). Economic surpluses of farmers consuming relief services (CS) andserv- ice suppliers (PS)atdifferent price levels (Table 4) arecalculated accordingtothe following equations:

Pd

cs_d ⁼

j

^{D(p)dp =} a,{(l/(r1^{+ +l)} Pl

- (1/(T|+ l))p,^{(T1+l) }}

Table5.Sensitivityof welfare effects to changesinprice elasticities.

Price Price of Quantity Quantity ChangeinCS Change

elasticity of aholiday supplied demanded _of inPS

-demand (FIM/day) (mill, days) (mill, days) (FIM mill.)

(FIM mill.) entitled to

- supply ^*=equil.

price holiday(FIM)

-0,35 1,00

400 1.7 2.5 43.9446.7 -32.2

-223.7 -2 277.9195.6

-516.9 -5 264.1541.7

44.4452.6 -32.2

-146.6 -1 493.3128.0

-451.3 -4595.4541.7

•514 2.2 2.2

650 2.8 2.1

-0,95 1,00

400 1.7 2.5

*483 2.1 2.1

650 2.8 1.6

-0,65 0,70

400 1.8 2.5 44.2 449.7

-216.7 -2207.2 -482,6 -4914.8

-32.4

*514 2.1 2.1 189.2

502.5

650 2.5 1.8

Pu

PS_d ⁼

j

^{S(p) dp =S(p}d⁾-S

(p,)

Pi

When comparedto theextent of relief services realised in 1990 in the state-led system, the equilibrium would be reached, ceteris paribus, if quantity demanded_were 200 000 days,or2 days per farmer entitledtoholiday,smaller,and quantity supplied_were 400 000 days,or 4 days per ^farmer, larger. Were the relief service system to reach a market equilibrium, the averagecost,and price, per vacation day would increase by 18 per cent.

Naturally, the higher the price of theservice, the lower farmers’ surplus. The opposite is true for service suppliers,atleastatthis range and elasticity of prices. Because supply is moreelastic than de- mand, the difference between the changes ofsur- pluses increasesas the price rises.

In the market system, if equilibrium does not hold and supply exceedsdemand, service suppliers incur losses due to sub-optimal use ofresource capacity, e.g. replacement workers, dedicated to relief services. In thecase of_aninadequate supply, consumer-farmers face welfare losses in the form ofanimpaired working ability and increased risk of accidents due to lack of relaxation and leisure.

Moreover,farmersare prevented from maximising utility when the optimal L-L choice is unattainable.

In ordertoprovideareasonable rangetoevaluate

the calculated welfareeffects, asensitivity analysis with the different elasticity pairs is conducted (Table 5). Compared to the basis, the market equilibrium inaprivately organisedsystemofrelief servicescauses reductions in surplus of about FIM 1 500 ^- 2 300 per farmer^(Table 4 and 5). In addi- tion, the total increase in service suppliers surplus is smaller than the total decrease in farmer surplus.

Thus, aPareto improvement accordingtothe Kal- dor-Hicks compensation criterion remains unat- tainable when farmers and service suppliers only aretaken into_account.

Net welfare gain is, however,obvious when di- rectgovernmentsavings (see costsin Table 2) due to the reform are included in the welfare^assess- ment. Even the proposed reduction ingovernment expenditure ofFIM 200 million would be adequate tocoverthe difference between farmers’ losses and service suppliers gains, and maintainanetwelfare gain. Hence, there is scopetouse governmentsup- port for farmers’ relief services ina moreefficient way in the market systemof reformed reliefserv- ices.

Concluding observations

The significance of leisureas acontributortowell- being increases when economic welfare reaches a higher level. Leisure and recreation_aresocial rights

and associatedto many other determinants of wel- fare, e.g. health and socialactivity. In the future, farmers’ leisure-labour (L-L) decisions may be in- fluencedtoanincreasingextentby the needtohave sufficient time for social activity in the form of political pressure and lobbyingtodefend e.g. farm- ers’ social securitysystems.InFinland, leisure and relaxation are made available tofarmers by relief services. Theyare a partof farmers’ social security intended toguaranteethe agricultural sectora just position in the society intermsof the development

and allocation of welfare.

Conventionally, both economic and demog- raphic factors affect farmers’ L-L choices. Due _to several special characteristics of agriculture and farm enterpriseswewant toemphasize the follow- ing factors in connection tofarmers’ L-L^choices;

(a) the importance of price and income effects (see the PEP and lEP analysis) exceeds that of inter-gen- erational changes in attitudes, to which farmers’

strongerpreference toleisure istoo oftenreferred, (b) biological bindings and continuity of agricul- tural production has special repercussions onfarm- ers’ L-L choices, and (c) the L-L choice involves considerable risk especially in agricultural produc- tion. These three arguments suggest that farm in- come development, the degree of specialization, and availability of skilled and reliable relief work- ers havetobe taken intoaccountin the determina- tion of the opportunitycostof leisure for_afarmer.

The leisure-labour choice is oftenachoice between economic result and foregone earnings.

Structural development in agriculture is an im- portant factor in explaining the demand for relief services. On theone hand,the rapid decrease in the number of farmers has reduced the demand.But, on the otherhand,improved availability and increased use of the possibility to hire relief workers have increased the number of relief days done in the systems. Income and price effects ^are, however, crucial in conditions that are changing condi- tions bearing the impression ofgreatuncertainty.

Pressure _toreform is _apparentin both agricultural and the entire social security system due to economicrecession,budgetaryconstraints, and,ap- parently, possible EU membership.

We conclude that the following broadly defined factors crucially affect demand for farmers’ leisure and relief services: (a) structural development in agriculture, (b) structural reform of the socialsecu- rity system as a whole,(c) the form of administra- tion, organisation, and financing of services, (d) affordability of services withrespecttoincome and price implications, and (e) European integration and legislative harmonisation.

The welfare analysis implies that increases in farmers’ costs and user payments would lead to substantial losses for farmers, anda decline in the demand for services. However, direct government savings would abundantly suffice _{to compensate} for farmers losses, and still maintain net welfare gain in the reform of the relief service system.

Moreover, ashift from_aheavily administered_state- ledsystem toa market oriented systemcould pro- duce economic benefits and efficiency through bet- ter local organisation and increased flexibility be- tweensuppliers and_consumersof relief services.

When the number of farms decreases and diver- sity in the needs for relief services increases, ^a local, multipurpose enterprise could be the most efficient and flexible in meeting the changing de- mand offarmers for relief services. This wouldalso facilitate a shift towards the practice common in many EU countries. State subsidization,eithertoa service supplier or afarmer according toservices actually used, could still be required in order to lower farmers’ costof services andtomaintain the systems in operation. Problems may persist, how- ever,between diverse objectives of social (welfare) policy and agricultural policy.

In European integration farmers’ relief services could be developed as an allowed mechanism of nationalsupport,ifso desired,tosecure afair stand- ard of living for farmers. Moreover,farmerscanbe both users and suppliers of relief services. There- formed relief servicescan generate anappropriate

sourcetoincrease farmers’ welfare by, convention- ally, transferringsupportofa de-coupled, non-dis- torting, social policy _{nature to}farmers, and, more contemporarily, creating additional income and employment opportunities in rural _areas through service-supplier farm firms.

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AgriculturalEconomics Research Institute. Statistics about farmers subsidized holidays in 1974-1992.

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Manuscriptreceived August1993

SELOSTUS

Vapaa-aika ja viljelijöiden hyvinvointi muuttuvissa olosuhteissa

Jukka Kola ja Sanna Sihvola Helsingin yliopisto

Artikkelissa tarkastellaantyö-vapaa-aika -valintaa maatalou- dessa jaarvioidaan hyvinvointivaikutuksia siirryttäessä val- tiojohtoisestatuetustajärjestelmästäkohti markkinamekanis- mia.Lomituspalveluidenavullajäljestetty vapaa-aikaon tär- keäviljelijöiden hyvinvoinnin osatekijä,muttatyö-vapaa-aika -valinta vaikuttaa myös tilan taloudelliseen tulokseen.

Taloudellistenja demografisten tekijöidenlisäksi artikke- lissa tarkastellaan maataloustuotannon biologista sidonnai- suuttaja jatkuvuuttasekä riskiäjaepävarmuutta,jotkavaikut- tavat viljelijöiden ajankäyttöön. Lomituspalveluiden kysyn- nänkehittymistäselitetään maatalouden rakennemuutoksella.

Suomessalomituspalveluiden organisointionkeskitetym-

pää kuin muissaPohjoismaissa taiEuroopan yhteisössä. Hy- vinvointitaloustieteellisellä laskelmalla arvioidaan vaikutuk- sia, mikälilomituspalveluiden valtiontuki poistettaisiin Suo- messaja järjestelmätoimisivapaastimarkkinoilla. Laskelman mukaan suorat valtion säästöt olisivat riittäviä kompensoi- maanviljelijöiden hyvinvoinnin menetyksiä. Vapaastitoimi- vatmarkkinat toisivat taloudellista tehokkuuttaja joustavuut- ta. Jonkinasteista valtion tukea muuttuvissa olosuhteissasaa- tetaankuitenkin tarvita,jotta palvelut kehittyisivät ja palveli- sivat tukijärjestelmänä, jokaon luonteeltaan sosiaalinen ja kilpailua vääristämätön.