Ayal Kimhi is a Professor for Agricultural Economics at the Hebrew University. He also serves as Vice President of the Shoresh Institution for Socio-Economic Research. Address: Jerusalem, Israel
This research studies the issues of intergenerational transfers in general and farm succession in... more This research studies the issues of intergenerational transfers in general and farm succession in particular in two different institutional environments. One is the relatively unregulated farm sector in the United States, and the other is the heavily regulated family farms in Israeli moshavim. Most of the analysis is based on modern economic theory dealing with inheritance and other intergenerational issues. However, we start with two background studies. One is a review of the legal system affecting farm succession in the moshav, which, as we claim throughout the report, is of major importance to the question in hand. The second is an ethnographical study aimed at documenting various inheritance and succession practices in different moshavim. These two studies provide insight for most of the economic studies included here. The theoretical studies mostly deal with various aspects of two major decisions faced by farmers: who will succeed them on the farm, and when will succession take place. The first decision clearly depends on the institutional structure: for instance, Israeli farmers are limited to one successor while American farmers are not. The second decision can be taken in three stages: sharing farm work with the successor, sharing farm management, and eventually transferring the ownership. The occurrence and length of each stage depend on the first decision as well as on the institutional structure directly. The empirical studies are aimed at analyzing the practices and considerations of Israeli and American farmers regarding various intergenerational transfers-related issues. We found that American farmers' decisions are mainly driven by the desire to let the farm prosper in future generations and by a preference for equal treatment of heirs, and not at all by old-age support considerations. In contrast, we demonstrate the significant effect of old-age support on the value of the transferred farm in a sample of Israeli farms. Using Israeli census data, we find that the time of farm ownership transfer responds to economic incentives. A smaller Israeli panel data set shows that controlling for the occurrence of succession, farm size rises with operator's age and eventually falls, while intensity of production seems to decline steadily. This explains another finding, that farm transfer contributed significantly to farm growth when farming was attractive to successors. This finding supports our main conclusion, that the succession decisions are of major importance to the viability and profitability of family farms over the long run.
Employees who attended upper secondary schools in central Israel (the center) earn nearly 11% mor... more Employees who attended upper secondary schools in central Israel (the center) earn nearly 11% more than those from the country’s periphery. This study, examining Israelis born in 1978-85 and employed during 2012-16, focuses on the relationship between wage gaps and differences in the quantity and quality of schooling, while controlling for many other characteristics affecting wages. The number of matriculation (bagrut) study units in mathematics (a higher number of units indicates a higher level of study) is found to have a much greater impact on future earnings than the number of matriculation units in other subjects. Pupils from the center tend to study more math matriculation units, have higher matriculation scores and earn higher wages. The higher the share of individuals continuing to academic studies, and the higher that level of study, the smaller the wage gap between former pupils from the center and from the periphery. The study concludes that a substantial upgrade of periphery schools – particularly in the quality of their math education – should ensure better opportunities for their pupils in the labor market, and reduce income gaps between them and their counterparts from the center.
Modern agriculture often relies on foreign workers. Critics claim that it hinders investments in ... more Modern agriculture often relies on foreign workers. Critics claim that it hinders investments in labor-saving techniques, and leads to unemployment of unskilled native workers. Proponents highlight the contribution of foreign workers to growth, especially in rural areas.<br><br>This paper investigates whether the inflow foreign workers really affect the demand for local workers in agriculture. We exploit an 8% tax that was assessed on the wages of foreign workers in 2003. If foreign workers are substitutes to local unskilled workers, the demand for local unskilled workers should increase as a result of the tax, and their wages should increase, unless their supply is perfectly elastic. On the other hand, if unskilled workers, foreign or local, are complements to skilled agricultural workers, the demand of the latter should decline, and their wages should decline as well.<br><br>We found, using a difference-in-difference regression approach, that the wages of local unskilled agricultural workers in Israel increased about 9% following the taxation of foreign worker wages, but the effect is not statistically significant, perhaps because of the small sample size. No changes in wages were found for skilled workers.<br><br>To conclude, this research provides some support to the hypothesis that there is substitution between foreign workers and local unskilled Israeli workers in agriculture, but this conclusion is not strong enough statistically.
Objectives: (1) Preparing panel data sets for both the United States and Israel that contain a ri... more Objectives: (1) Preparing panel data sets for both the United States and Israel that contain a rich set of farm attributes, such as size, specialization, and output composition, and farmers’ characteristics such as off-farm employment status, education, and family composition. (2) Developing an empirical framework for the joint analysis of all the endogenous variables of interest in a dynamic setting. (3) Estimating simultaneous equations of the endogenous variables using the panel data sets from both countries. (4) Analyzing, using the empirical results, the possible effects of economic policies and institutional changes on the dynamics of the farm sector. An added objective is analyzing structural changes in farm sectors in additional countries. Background: Farm sectors in developed countries, including the U.S. and Israel, have experienced a sharp decline in their size and importance during the second half of the 20th century. The overall trend is towards fewer and larger farms that rely less on family labor. These structural changes have been a reaction to changes in technology, in government policies, and in market conditions: decreasing terms of trade, increasing alternative opportunities, and urbanization pressures. As these factors continue to change, so does the structure of the agricultural sector. Conclusions: We have shown that all major dimensions of structural changes in agriculture are closely interlinked. These include farm efficiency, farm scale, farm scope (diversification), and off-farm labor. We have also shown that these conclusions hold and perhaps even become stronger whenever dynamic aspects of structural adjustments are explicitly modeled using longitudinal data. While the results vary somewhat in the different applications, several common features are observed for both the U.S. and Israel. First, the trend towards the concentration of farm production in a smaller number of larger farm enterprises is likely to continue. Second, at the micro level, increased farm size is negatively associated with increased off-farm labor, with the causality going both ways. Third, the increase in farm size is mostly achieved by diversifying farm production into additional activities (crops or livestock). All these imply that the farm sector converges towards a bi-modal farm distribution, with some farms becoming commercial while the remaining farm households either exit farming altogether or continue producing but rely heavily on off-farm income. Implications: The primary scientific implication of this project is that one should not analyze a specific farm attribute in isolation. We have shown that controlling for the joint determination of the various farm and household attributes is crucial for obtaining meaningful empirical results. The policy implications are to some extent general but could be different in the two countries. The general implication is that farm policy is an important determinant of structural changes in the farm sector. For the U.S., we have shown the different effects of coupled and decoupled (direct) farm payments on the various farm attributes, and also shown that it is important to take into account the joint farm-household decisions in order to conduct a meaningful policy analysis. Only this kind of analysis explains the indirect effect of direct farm payments on farm production decisions. For Israel, we concluded that farm policy (or lack of farm policy) has contributed to the fast structural changes we observed over the last 25 years. The sharp change of direction in farm policy that started in the early 1980s has accelerated structural changes that could have been smoother otherwise. These accelerated structural changes most likely lead to welfare losses in rural areas.
This article claims that coefficients of farmers' off-farm work participation equations might... more This article claims that coefficients of farmers' off-farm work participation equations might be estimated inconsistently if selectivity based on farm participation is ignored. Participation equations will be different for farm residents who do not work on farm, especially because their reservation wages are independent of farm attributes. We estimate the offfarm participation model separately for those who work on farm and those who don't, correcting for selectivity bias, using Israeli data. We reject the hypothesis of insignificant selection bias, and the hypothesis of equal coefficients in the two subsamples.
This research studies the issues of intergenerational transfers in general and farm succession in... more This research studies the issues of intergenerational transfers in general and farm succession in particular in two different institutional environments. One is the relatively unregulated farm sector in the United States, and the other is the heavily regulated family farms in Israeli moshavim. Most of the analysis is based on modern economic theory dealing with inheritance and other intergenerational issues. However, we start with two background studies. One is a review of the legal system affecting farm succession in the moshav, which, as we claim throughout the report, is of major importance to the question in hand. The second is an ethnographical study aimed at documenting various inheritance and succession practices in different moshavim. These two studies provide insight for most of the economic studies included here. The theoretical studies mostly deal with various aspects of two major decisions faced by farmers: who will succeed them on the farm, and when will succession take place. The first decision clearly depends on the institutional structure: for instance, Israeli farmers are limited to one successor while American farmers are not. The second decision can be taken in three stages: sharing farm work with the successor, sharing farm management, and eventually transferring the ownership. The occurrence and length of each stage depend on the first decision as well as on the institutional structure directly. The empirical studies are aimed at analyzing the practices and considerations of Israeli and American farmers regarding various intergenerational transfers-related issues. We found that American farmers' decisions are mainly driven by the desire to let the farm prosper in future generations and by a preference for equal treatment of heirs, and not at all by old-age support considerations. In contrast, we demonstrate the significant effect of old-age support on the value of the transferred farm in a sample of Israeli farms. Using Israeli census data, we find that the time of farm ownership transfer responds to economic incentives. A smaller Israeli panel data set shows that controlling for the occurrence of succession, farm size rises with operator's age and eventually falls, while intensity of production seems to decline steadily. This explains another finding, that farm transfer contributed significantly to farm growth when farming was attractive to successors. This finding supports our main conclusion, that the succession decisions are of major importance to the viability and profitability of family farms over the long run.
Employees who attended upper secondary schools in central Israel (the center) earn nearly 11% mor... more Employees who attended upper secondary schools in central Israel (the center) earn nearly 11% more than those from the country’s periphery. This study, examining Israelis born in 1978-85 and employed during 2012-16, focuses on the relationship between wage gaps and differences in the quantity and quality of schooling, while controlling for many other characteristics affecting wages. The number of matriculation (bagrut) study units in mathematics (a higher number of units indicates a higher level of study) is found to have a much greater impact on future earnings than the number of matriculation units in other subjects. Pupils from the center tend to study more math matriculation units, have higher matriculation scores and earn higher wages. The higher the share of individuals continuing to academic studies, and the higher that level of study, the smaller the wage gap between former pupils from the center and from the periphery. The study concludes that a substantial upgrade of periphery schools – particularly in the quality of their math education – should ensure better opportunities for their pupils in the labor market, and reduce income gaps between them and their counterparts from the center.
Modern agriculture often relies on foreign workers. Critics claim that it hinders investments in ... more Modern agriculture often relies on foreign workers. Critics claim that it hinders investments in labor-saving techniques, and leads to unemployment of unskilled native workers. Proponents highlight the contribution of foreign workers to growth, especially in rural areas.<br><br>This paper investigates whether the inflow foreign workers really affect the demand for local workers in agriculture. We exploit an 8% tax that was assessed on the wages of foreign workers in 2003. If foreign workers are substitutes to local unskilled workers, the demand for local unskilled workers should increase as a result of the tax, and their wages should increase, unless their supply is perfectly elastic. On the other hand, if unskilled workers, foreign or local, are complements to skilled agricultural workers, the demand of the latter should decline, and their wages should decline as well.<br><br>We found, using a difference-in-difference regression approach, that the wages of local unskilled agricultural workers in Israel increased about 9% following the taxation of foreign worker wages, but the effect is not statistically significant, perhaps because of the small sample size. No changes in wages were found for skilled workers.<br><br>To conclude, this research provides some support to the hypothesis that there is substitution between foreign workers and local unskilled Israeli workers in agriculture, but this conclusion is not strong enough statistically.
Objectives: (1) Preparing panel data sets for both the United States and Israel that contain a ri... more Objectives: (1) Preparing panel data sets for both the United States and Israel that contain a rich set of farm attributes, such as size, specialization, and output composition, and farmers’ characteristics such as off-farm employment status, education, and family composition. (2) Developing an empirical framework for the joint analysis of all the endogenous variables of interest in a dynamic setting. (3) Estimating simultaneous equations of the endogenous variables using the panel data sets from both countries. (4) Analyzing, using the empirical results, the possible effects of economic policies and institutional changes on the dynamics of the farm sector. An added objective is analyzing structural changes in farm sectors in additional countries. Background: Farm sectors in developed countries, including the U.S. and Israel, have experienced a sharp decline in their size and importance during the second half of the 20th century. The overall trend is towards fewer and larger farms that rely less on family labor. These structural changes have been a reaction to changes in technology, in government policies, and in market conditions: decreasing terms of trade, increasing alternative opportunities, and urbanization pressures. As these factors continue to change, so does the structure of the agricultural sector. Conclusions: We have shown that all major dimensions of structural changes in agriculture are closely interlinked. These include farm efficiency, farm scale, farm scope (diversification), and off-farm labor. We have also shown that these conclusions hold and perhaps even become stronger whenever dynamic aspects of structural adjustments are explicitly modeled using longitudinal data. While the results vary somewhat in the different applications, several common features are observed for both the U.S. and Israel. First, the trend towards the concentration of farm production in a smaller number of larger farm enterprises is likely to continue. Second, at the micro level, increased farm size is negatively associated with increased off-farm labor, with the causality going both ways. Third, the increase in farm size is mostly achieved by diversifying farm production into additional activities (crops or livestock). All these imply that the farm sector converges towards a bi-modal farm distribution, with some farms becoming commercial while the remaining farm households either exit farming altogether or continue producing but rely heavily on off-farm income. Implications: The primary scientific implication of this project is that one should not analyze a specific farm attribute in isolation. We have shown that controlling for the joint determination of the various farm and household attributes is crucial for obtaining meaningful empirical results. The policy implications are to some extent general but could be different in the two countries. The general implication is that farm policy is an important determinant of structural changes in the farm sector. For the U.S., we have shown the different effects of coupled and decoupled (direct) farm payments on the various farm attributes, and also shown that it is important to take into account the joint farm-household decisions in order to conduct a meaningful policy analysis. Only this kind of analysis explains the indirect effect of direct farm payments on farm production decisions. For Israel, we concluded that farm policy (or lack of farm policy) has contributed to the fast structural changes we observed over the last 25 years. The sharp change of direction in farm policy that started in the early 1980s has accelerated structural changes that could have been smoother otherwise. These accelerated structural changes most likely lead to welfare losses in rural areas.
This article claims that coefficients of farmers' off-farm work participation equations might... more This article claims that coefficients of farmers' off-farm work participation equations might be estimated inconsistently if selectivity based on farm participation is ignored. Participation equations will be different for farm residents who do not work on farm, especially because their reservation wages are independent of farm attributes. We estimate the offfarm participation model separately for those who work on farm and those who don't, correcting for selectivity bias, using Israeli data. We reject the hypothesis of insignificant selection bias, and the hypothesis of equal coefficients in the two subsamples.
This study examines developments with regard to wage disparities in Israel during the period 1997... more This study examines developments with regard to wage disparities in Israel during the period 1997-2011. This period witnessed a growing return, or yield, on education, a factor which could lead to a rise in labor income inequality. Israeli labor income gaps actually declined somewhat, though, due to the fact that low-wage earners improved their status relative to higher-wage earners. One possible factor in the narrowing of labor income disparities was the rise in the minimum wage. Workers in income deciles 7 and 8 experienced a wage decline, relative to lower- and higher-wage workers, and this led to a more polarized labor income distribution. This polarization trend is also evident in the distribution of work-hours by occupation: occupations associated with both low and high wages witnessed an increase in work-hours relative to work-hours in occupations characterized by mid-range wages. A breakdown by occupation shows that the education wage premium for low-income occupations increased, while for high-wage occupations there was a decline in the return on education. This fact may also explain the relative wage increase experienced by low-wage earners. These trends indicate that higher education is now becoming economically advantageous to those in low-wage occupations.
Demographic forecasts point to a sharp rise in the percentage of older Israelis over the coming y... more Demographic forecasts point to a sharp rise in the percentage of older Israelis over the coming years. It is unclear to what extent the country’s social security and pension systems are prepared for this change. This chapter looks at the changes that occurred in the employment patterns and economic status of Israel’s older adults between 2001 and 2011. The research indicates that the employment rates of people aged 55-64 rose over the course of this decade, particularly among new immigrants. The employment rates of people aged 65-74 rose as well. Per capita income for households headed by older adults increased significantly over the decade, due primarily to a rise in income from work, capital, and pensions. The findings indicate that the rising percentage of older Israelis in the population does not necessarily herald an increase in economic distress within this age group or a heavier burden on the social services. However, more flexibility is needed regarding terms of retirement, to enable those who wish and are able to continue working past the official retirement age. Moreover, an improved safety net should be provided for those who are not able to provide for themselves after retirement.
Israel is characterized by exceptionally low employment rates of men and by high wage gaps amongs... more Israel is characterized by exceptionally low employment rates of men and by high wage gaps amongst the working population. Over the past few decades, the decline in male employment was concentrated amongst the less educated, while the rise in female employment has been attributed almost entirely to the rise in the level of education of the younger generations. These trends are especially pronounced in the Arab sector. The growing importance of education in the Israeli labor market is expressed also in the fact that the wage gap between more and less educated workers has not narrowed in the past decade despite the large growth in the share of educated workers. An examination of the changes in wages by occupational group indicates a relative growth in demand for educated workers in specific occupations, something that has brought about a rise in wage gaps in those particular occupations. The conclusion is that employment gaps and wage gaps in Israel are, to a large degree, correlated with education. The skills that workers with no more than 12 years of schooling have do not allow them to integrate in a satisfactory way into the modern labor market.
Israel is one of the least equal countries in the Western world. Part of the responsibility for t... more Israel is one of the least equal countries in the Western world. Part of the responsibility for this lies with the government’s welfare policy, but most existing income inequalities stem from disparities in employment, work hours and wages. Wage gaps in Israel are higher than in any other developed country and are particularly evident where worker educational levels differ. Over the past decade the average Israeli worker’s educational level has risen greatly while at the same time, demand for educated workers has grown even faster, leading to the continued widening of wage gaps. Policies aimed at narrowing socioeconomic disparities in Israel should, in the short term, promote employment and provide income support to low-wage earners. In order to succeed in the long term, though, policies should upgrade the skills of the future generations of workers, and minimize the skill gaps. For this to happen, it is not enough to increase the number of years of schooling, the percentage of those eligible for matriculation certificates, or the percentage of those with academic degrees. It is also necessary to upgrade the curricula and the level of training provided by educational institutions.
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Papers by Ayal Kimhi
over the course of this decade, particularly among new immigrants. The employment rates of people aged 65-74 rose as well. Per capita income for households headed by older adults increased significantly over the decade, due primarily to a rise in income from work, capital, and pensions. The findings indicate that the rising percentage of older Israelis in the population does not necessarily herald an increase in economic distress within this age group or a heavier burden on the social services. However, more flexibility is needed regarding terms of retirement, to enable those who wish and are able to continue working past the official retirement age. Moreover, an improved safety net should be provided for those who are not able to provide for themselves after retirement.
socioeconomic disparities in Israel should, in the short term, promote employment and provide income support to low-wage earners. In order to succeed in the long term, though, policies should upgrade the skills of the future generations of workers, and minimize the skill gaps. For this to happen, it is not enough to increase the number of years of schooling, the percentage of those eligible for matriculation certificates, or the percentage of those with academic degrees. It is also necessary to upgrade the curricula and the level of training provided by educational
institutions.