Agric. sci. dev., Vol(3), No (7), July, 2014. pp.

251-255

TI Journals

ISSN:

Agriculture Science Developments

2306-7527

www.tijournals.com

Copyright 2014. All rights reserved for TI Journals.

Labor Productivity and Factors Affecting its Demand in Paddy Farms in

KB province, Iran
Arsalan Biniaz
Member of Scientific Board of Agricultural Faculty, Rasak Payam Noor University, Sistan-va-Baluchestan Province, Rasak, Iran

Behrooz Hassanpour*
Assistant Professor of Agri-Economics, Agricultural & Natural Resources Research Center, KB Province, P.O. Box 351, Yasouj, Iran

Esa Asadi
MSc. Researcher of Agri-Economics, Agricultural & Natural Resources Research Center, KB Province, P.O. Box 351, Yasouj, Iran
*Corresponding author: beh_hassanpour@yahoo.com

Keywords

Abstract

Labor productivity
Labor demand
Iterative seemingly unrelated regression
Trans-log profit function

In addition to land and capital, labor force is considered as one of the most important factors affecting the
production of agricultural products, and plays a significant and effective role in all production processes of a
product. In this study, marginal productivity and average labor force have been calculated by the use of
production function. Furthermore, to determine the effective factors on labor force, Tran-slog profit function
was selected and estimated through Shepherd's Lemma and iterative seemingly unrelated regression (ISUR).
The results of this study showed that average and marginal productivity of labor force are 0.26 and 0.23,
respectively. Labor demand elasticity calculation showed that fertilizer inputs and machinery are both
considered as substitutes for labor. Furthermore, the results obtained from calculation of labor demand
elasticity in terms of wage ratio, prices and the cultivation area showed that this elasticity is sensitive and
elastic. In other words, change in wage ratio, price and cultivation area have positive effect on labor demand.

1.

Introduction

Agriculture is one of the most important economic sections of the country, which structurally plays a significant role in economic development
process; furthermore, the role of agriculture in Iran economy is so strategic and critical that involved more than 4.5 million farmer families
(Statistics Centre of Iran, 2007). Since increase of productivity in one economic section or production unit means reduction of production and
prime cost of every product; and, consequently increases the output of that unit or production section, the productivity criterion and its changes is
a good guidance for managers of production units and major economic planners in evaluation of production section. Labor is one of the essential
production factors shaping the economic development in communities which through cooperation and partnership in production whether
physically or intellectually or in terms of management and technology plays an outstanding role in production. In addition to land and capital,
labor is considered as one of the most important effective factors in production of agricultural products and plays various roles in all production
processes of one product.
Concerning the significance of agricultural section in job creation and the role and significance of labor in production of agricultural products,
and finally its role in economic development, it is very important to make proper and efficient use of labor, to make proper policies for attraction
of skillful labor in agricultural section, to identify effective factors on labor demand in this section and the to realize the necessity of optimum
use of this renewable source for control of employed population in this section and productivity. The investigation of employment status in
agricultural section and its comparison with other economic sections shows that the employment rate in this section has decreasing trend.
According to the latest census of population and housing in 2006, the employment rate of agricultural section is 22.8%, for industry it is 32%
and for services section is 45.1% (Statistics Centre of Iran, 2007). Paddy is a labor-intensive cultivation. The cultivation needs many workers
due to special treatment in planting and harvesting processes.
The accessibility of many springs and rivers in Kohgiluyeh-va-Boyerahmad (KB) province has provided the ground for paddy such that in terms
of cultivation area, rice is the second irritated agricultural product of this province. KB province is in seventh rank in terms of rice production in
the country (Ministry of Agriculture, 2010). The paddy lands of this area are somehow traditional and labor is an inevitable part of production. In
refer to the significance of agriculture in KB province and the fact that employed population of this section constitutes 19% of employed
population of the whole province, it seems very significant to study agriculture labor in terms of productivity and its effective factors due to
distribution of employed population between major sections (industry, agriculture and service) and for the reason that this province has the
highest unemployment rate, i.e. 17.6% (Anonymous, 2011). Thus, the present study seeks to investigate effective factors on labor demand of
agriculture and calculation of its productivity.
Of the studies done on productivity and demand of production factors the following can be referred to: Study of Bustani and Mohammadi (2007)
entitled The investigation of productivity and water demand function in production of beet in Eghlid township, Mohammadi et al (2005)
entitled The study of factors productivity and the production inputs of sugar beet farms in Eghlid area, Khakbazan and Gari (1993) on the
labor productivity in Iran agriculture, Daneshvar Kakhki et al (2005) on the estimation of production inputs demand for supplying potato to
Khorasan province with the aim of simultaneous estimation of interest function, product supply and inputs demand and estimation of demand
elasticity of potato production and supply inputs. Shajari and Sultani (2000) estimated wheat farmers labor demand function in Fars province
using profit function model and investigated the elasticity of production factors in wheat cultivation. Using restricted Trans-log profit function
and derived demand equations system, Sidhu and Baanate (1979) estimated demand functions of inputs and Mexican wheat distribution factor in

Arsalan Biniaz, Behrooz Hassanpour *, Esa Asadi

252

Agriculture Science Developments Vol(3), No (7), July, 2014.

Panjab state of India. In a research on paddy growers of KB province, Hassanpour (2005) obtained marginal and average productivity of
production factors using the estimation of transcendental production function. Carew et al (1992) used normal quadratic profit function to
estimate demand function of several products including corns and livestock products and inputs demand functions. Lee (2005) carried out a
study entitled human capital and productivity to reinforce and protect economic growth and productivity in Korea. Hassanpour (2013) analyzed
the optimum use of farm and economic efficiency of paddy in KB province. The previous studies showed that the selected model (Tans-log
profit function) has a good fitness for estimation of model. The main objective of this study is to investigate the labor elasticity by consideration
of rice price, wage ratio and marginal and average labor productivity in the land used for rice production.

2.

Methodology

To investigate the objectives of this study, various models and methods have been used. For productivity calculation of every production factors,
various methods have been proposed (Fatahi Ardakani, 1996). Average productivity is the amount of output obtained from a consumed input
unit. On the other hand, marginal productivity is the amount of product which each factor or input adds to the total output (Salami, 1998). The
common calculation method for each one is as follow:
1. Average productivity: the common method for measuring average productivity is as follow:

(1)

Where, Y is total output and Xi is the consumption of input i.

2. Marginal productivity: this is actually the calculation method of marginal production. In other words, first the production function should be
estimated, then compared to each production factor, differentiate is done.

(2)

Where, Y is the output changes and Xi is the changes of i input consumption. Since for marginal productivity calculation a production function
is required, before any action, the proper production function should be estimated. To this end, Cobb-Douglas production function and
transcendental forms were used. To compare Cobb-Douglas production function and transcendental forms for diagnosis, restricted least squares
F test was used. In this study, production function was estimated through ordinal least squares (OLS) and using EViews for both Cobb-Douglas
production function and transcendental forms. Relying on economic theories and the experiences obtained from the studies, various methods
have been proposed for analysis of demand function of production factors. These methods are classified into two general groups including linear
programming and econometrics. Econometrics is divided two direct and indirect methods. In indirect econometrics, the supply functions and
production factors demand are extracted from symmetry functions like cost and profit functions based on duality theory (Burrell, 1989).
To obtain profit and demand functions of production factors, first production factor with m variable inputs and n constant input are taken into
account. Using Shepherd's Lemma, it is easily possible to obtain input demand and realize the advantage of profit function method than
production function (Sidhu and Banant, 1979). In the present study to estimate profit function and derived functions, Trans-log function form
was used. Restricted Trans-log profit function for unit product is as follow:
n
m
m m
n n
1 n n
 Ln * LnP * 1 LnP * LnP * LnP * LnZ k LnZ k kj LnZ k LnZ j
i
i
ih
i
h
ik
i
k
0

2 i 1 h1

i 1

i 1 k 1

k 1

2 k 1 j 1

(3)


In the above function, is the normalized profit in respect to product price (Py), is the i-th normalized input price in respect to Zk normalized
product price of k-th constant input. Ln is the representative of natural logarithm and are model parameters which
should be estimated. The above function is first order homogeneous in respect to the price of all variable inputs. After the profit function form
was specified, assuming that the farmer cannot have any effect on the input and product price, the input demand function will be obtained by the
use of Shepherd's Lemma and differentiating the mentioned profit function in respect to the price of every input as follow:

X i*


Pi

(4)

If we multiply the sides of above equation by

Pi * X i* Pi * Ln *
* *
Si
*
Pi
LnPi*
m

h 1

k 1

S i i ih LnPi * ik LnZ k

, we will have:

(5)

(6)

is the value of ith variable input and Si is the profit share of ith input which is called profit share function. The profit share equations

according to Shepherd's Lemma are the same as conditional demand equations (Burrell, 1989). The statistics used in this study have been
prepared in two ways. Part of required information has been supplied from official sources and governmental organizations like Agricultural
Jihad, Organization of planning management and Iran center of statistics. While a great part of information has been collected through survey
research and filling questionnaire by paddy growers, this was done through multistage cluster sampling and face-to-face interview with farmers
and filling questionnaire. Data analysis has been done by Eviews software package. To estimate production function by Cobb-Douglas
production and transcendental forms, ordinal least squares (OLS) was used and for estimation of profit function and labor demand, iterative
seemingly unrelated regression (ISUR) was used.

253

Labor Productivity and Factors Affecting its Demand in Paddy Farms in KB province, Iran
Agriculture Science Developments Vol(3), No (7), July, 2014.

3.

Result and Discussion

To estimate the production function of paddy growers, Cobb-Douglas production and transcendental forms were used; to this end, production
functions were estimated in the model by consideration of all independent variables in the model. The final results are presented in Table 1.
Concerning Table 1 in Cobb-Douglas function, cultivation area, work force, consuming seed, consuming fertilizer and consuming poison have
meaningful effect on production while for machinery hours, consuming water and variety variables are not meaningful. The adjusted
determination coefficient in this function is 0.96, indicating that 0.96% of dependent variables are considered by independent variables which
will be explained in the model. Concerning the larger value of calculated F statistics than F value of the table, we conclude that independent
variables in the model were collectively able to explain dependent variable and the selection of model variables has been truly done. DurbinWatson (DW) statistics value is 1.96 which indicates the lack of autocorrelation phenomenon in the model. In transcendental function,
cultivation logarithmic variables, labor, consuming fertilizer, poison, consuming water and linear variables of the value, cultivation area, labor,
seed, fertilizer and consuming poison become meaningful and variables of machinery, seed and water (linear form) are not meaningful. The
value of adjusted determination coefficient in this function is 0.96, thus, it indicates that 0.96 of dependent variable changes are explained by
independent considered variables in the model.
Concerning the higher value of computational F than table F in this function, it can be argued that independent variables have been collectively
able to explain dependent value and the selection of model variables has been truly done. The value of DW statistics is 1.78 shows that there is
no autocorrelation in the model. For identification of the best model, restricted least squares F test can be used. Concerning computational F it is
possible to select Unrestricted Model (Transcendental) as the proper model for interpretation of paddy production function and obtain average
and marginal productivity of each production factor from it.
Table 1. The results obtained from estimation of paddy production function
Cobb-Douglas model

Variable
Constant value
Cultivation area (Ln)
Labor (Ln)
Machineries (Ln)
Consuming seed (Ln)
Consuming fertilizer (Ln)
Consuming poison (Ln)
Water (Ln)
Variety variable
Cultivation area
Labor
Machinery
Seed
Fertilizer
Poison
Water
Statistics

Coefficient
-7.24
1.13
-0.46
1.49
0.72
0.46
F= 429.37
D.W= 1.96

Transcendental model

Statistics (t)
-7.24***
10.06***
- 1.90*
6.12***
4.93***
2.36***
R2= 0.964
R 2= 0.96

Coefficient
-3.87
2.19
0.45
0.89
1.63
0.19
0.38
-0.26
-0.008
0.003
-0.0006
-0.45
F= 309.26
D.W= 1.78

Statistics (t)
3.066**
11.03***
-2.25**
4.41***
5.42***
2.65**
3.34**
-3.98**
2.28**
3.43**
2.33*
-3.11
R2= 0.97
R 2= 0.96

(*), (**) and (***) indicate meaningful level in 10%, 5% and 1%, respectively. The specified cells with dash indicate the
elimination of variable due to its being not meaningful.
Source: Research findings

One of the features of transcendental production function is that production elasticity of inputs is not fixed. Production elasticity of inputs in this
form depends on the consumption of that input. The results indicate that the most elasticity is related to the cultivation area inputs and
consuming poison. Thus, there is direct relation between the consumption of these inputs and production. For example, by one percent increase
cultivation area, the production increases by 1.55 and the value of cultivation area elasticity being bigger than one shows that it works in the first
economic area. Furthermore, the production elasticity in respect to labor production input of 0.06 indicates that by one percent increase in labor,
production increases by 0.06 and since this value is between one and zero, it is in the second economic area. Moreover, production elasticity and
fertilizer are respectively 0.6 and 0.72 and the return to scale ratio equals to 2.86 which indicates increasing return to scale (IRS).

Inputs
Elasticity

Cultivation
area (ha)
1.55

Table 2. Production elasticity of every input

Labor
Machinery
Seed
Fertilizer
(Man- Day)
(h)
(kg)
(kg)
0.06

Cells specified by dash indicate the removing of variable for not being meaningful.
Source: Research findings

0.6

Poison
(Lit)

Water
(m3)

0.72

Arsalan Biniaz, Behrooz Hassanpour *, Esa Asadi

254

Agriculture Science Developments Vol(3), No (7), July, 2014.

The results obtained from average productivity and the labour used for paddy production has been presented in Table 3.
Table 3. Marginal and average productivity and labour in rice production
Average productivity
Average marginal productivity
___

___

of labour: MP X
0.23

of labour: AP X
0.26
Source: Research findings

In refer to the mentioned table in explanation and interpretation of average labour productivity, it can be said that using one unit of workforce,
0.26 production units will be added to the product. Furthermore, in interpreting the mean labour productivity, it could be said that the last labour
input unit which is used adds about 0.23 kg in hectare to the product. Concerning the research hypothesis on that the labour productivity
increases by cultivation area, we divided the sample into three groups and calculated the marginal and average productivity for each group, the
results are presented in Table 4.
Table 4. Marginal and average productivity according to cultivation area in paddy farms
Productivity

Average productivity
Marginal productivity

Less than 2 Hectare

2-4 Hectares

Above 4 Hectares

0.182
0.036

0.31
0.083

0.36
0.12

Source: Research findings

According to above table, by increase in the cultivation area of paddy, the marginal productivity and average labor have increased. Thus, the
relation between cultivation area and labor productivity is positive. Table 5 presents the coefficients of profit function and labor demand which
have been estimated through iterative seemingly unrelated regression (ISUR).
According to the table from 28 estimated parameters, 18 parameters are meaningful in statistical level below 5%, 10% and less than 1%. The R2
calculated value in form of single equation for Trans-log profit function is 0.91 which indicates dependent variable has been well described by
the independent variables in the model. As expected, in the estimated profit function, the coefficients related to variable inputs' price are with
negative sign which indicates the price of variable inputs has negative effect on the gross profit. The related coefficient to cultivation area and
the number of family labor have positive sign and indicate that the value of mentioned constant inputs had positive effects on gross profit; in
other words, the estimated profit function is decreasing in respect to variable input price and increasing in respect to constant input values.
Table 5. The results from simultaneous estimation of profit and labour demand functions in the studied sample
Estimated
Estimated
Parameters
Statistics (t)
Parameters
Statistics (t)
coefficient
coefficient
10.695
-5.795*
-0.315
0.383

-0.407
-2.765**
0.081
2.16*

-0.0009
-0.488
0.065
-1.92*

-0.369
2.564**
0.012
0.020

0.675
1.633
0.303
2.27**

1.278
2.548**
-0.459
4.85***

0.165
1.897*
0.777
1.993*

-0.168
-1.89*
-0.114
-0.615

0.162
0.648
-1.575
-0.897

-0.0045
-2.873**
0.0022
2.675**

-0.980
-7.43***
-0.0023
2.98***

0.564
-3.603*
-0.0034
1.786

1.441
0.153
0.0098
2.27**

**
2
2
0.0034
2.294

R = 0.91
D.W= 0.191
R = 0.88

(*)(**)(***) indicate the meaningfulness at 0.10, 0.5 and 0.1.

Source: Research findings

As seen in Table 5, the variables entered in the model for the studied sample consist of normalized price variables of varied inputs including
labour, fertilizer, machineries and consuming seeds along with the values of constant inputs including cultivation and the number of family
labour. According to the results of estimating equation system above, the demand for labor simultaneously Trans-log profit function is estimated
as follows:
Ln*
SL
0.407 0.168LnPL 0.0034LnPF 0.0098LnPM 0.002LnA 0.0023LnLA
*
LnPL
In the above equation, the labour demand significantly related with variables, including normalized wages, prices normalized inputs of chemical
fertilizers and machinery, the amount of acreage and the number of family labour. While there is no significant relationship with price
normalized seeding. In addition, the relationship between labor demand and wages of family labor is negative. Increasing the wages and
employment of family labor than demand for labor will be diminished. But the relationship between labor demand with price normalized
chemical fertilizers, machinery and the amount of acreage is a positive correlation means that these three factors increase the demand for labor
employment increases. In order to determine the impact of each factor input in product prices and changes in labor demand, the elasticity of
labor demand with respect to price changes and price of inputs variables are calculated. In Table 6, the results of its elasticity, cross-price
elasticity of labor demand with labor demand with respect to price and amount of acreage, are presented.

255

Labor Productivity and Factors Affecting its Demand in Paddy Farms in KB province, Iran
Agriculture Science Developments Vol(3), No (7), July, 2014.

Inputs
Labour
Demand

Labour
wage
-1.43

Table 6. Price elasticity of demand for labor in the sample

Machinery
Product
Fertilizer price
price
price
0.12

0.18

1.03

Cultivation
area
1.3

Source: Research finding

In refer to above table, it can be seen that labour demand price elasticity is negative which is reasonable and true. Furthermore, labour demand is
elastic in respect to labour wage, product wage and cultivation area and inelastic in respect to fertilizer and machinery services price. That is, if
wage value, product price or cultivation area changes one percentage, labour demand will change more than one percentage, while, it changes
less in respect to price changes of the fertilizer and machinery.

4. Conclusion
Since the relation between the farm size and labor productivity is positive, when the cultivation area increases, it would become possible for
small farmers to use better combination of user and capital inputs and increase labor productivity in their fields. Thus, integration of lands and
construction of cooperation can be an effective step for increasing labor productivity or at least preventing its reduction. Due to substation
relation between labor and machinery, mechanization policies can lead to less use of labor and increase of unemployment in the area. Thus,
although mechanization is considered a desired objective in long term; in short term period, the mechanization development through various
ways including offering facilities and bank credit should be done by full knowledge of unemployment rate in the area and mechanization should
be developed in areas with labor deficit. Due to labor demand elasticity in respect to product price in the studied area, proper and reasonable
pricing policy can play a great role in increase of labor and decrease of unemployment. Since labor demand is elastic in respect to cultivation
area, changes in cultivation area have significant effect on labor demand. Thus, it is proposed to pave the way for attraction of labor force and
reduction of unemployment by increasing the cultivation area.

References
[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11]
[12]
[13]
[14]
[15]
[16]
[17]

Anonymous (2011). Kohgiluyeh-va-Boyerahmad province statistics of 2009. Deputy planning of Yasouj Government.
Baradaran Rad, R. (1996). The estimation of expert labor share in added growth of agricultural section. MSc Thesis of Economy, Faculty of Economy,
Allame Tabatabaei University: Tehran
Bustani, F., Mohammadi, H. (2007). The investigation of efficiency and water demand function in sugar beet production. Journal Sugar Beet. 23 (2), 185196.
Burrell, A. (1989). The demand for fertilizer in the United Kingdom, Journal of Agricultural Economics, 40: 1-20.
Carew, R. Chen, P. and Stevens, V. (1992). Evaluating publicly funded research in Canadian agriculture: A profit function approach, Canadian Journal of
Agricultural Economics, 40 (4): 547-560.
Fatahi Ardakani, A. (1996). The analysis of production factors affecting Pistachios production, case study: Ardakan, MSc. thesis of Agriculture Economics.
Faculty of Agriculture, Tarbiat Modares university
Hassanpour, B. (2005). The productivity investigation of rice production factors and efficiency of paddy growers in Kohgiluyeh-va-Boyerahmad province.
Research Centre of Agriculture and Natural Resources, Kohgiluyeh-va-Boyerahmad province, AREEO Final Report, 54 pp.
Hassanpour, B. (2013). Determining the optimal size and economic efficiency of paddy farms in KB Province, Iran. International Journal of Agriculture
and Crop Sciences, 5: (19): 2318-2321.
Kakhki, M., Omranian Khorasani, M., Haterf, H. and Sarvari, A. (2005). The estimation of demand functions of potato production and demand, Case study:
Khorasan province, Journal of Village and Development, 8 (3). 51-66
Khakbazan, M. and Gray, R. (1993). The role of labor in Iranian agricultural labor productivity and estimation of agricultural production, Economics'
Second Proceedings of Symposium of Agricultural Policy in Iran. Shiraz, Iran 1-6.
Lee, J.W. (2005). Human capital and productivity for Koreas sustained economic growth, Journal of Asian Economic, 16: 664-687.
Mohammadi, H. Mousavi, S. N. Kafil Zadeh, F. and Rahimi, M. (2005). Productivity of production inputs in sugar beet farms of Eqlid. Journal of Sugar
Beet. 21 (1), 31-41.
Ministry of Agriculture. 2010. Statistics of agricultural products of country for 2008. Deputy of planning and economy. Office of statistics and information
technology. Tehran.
Salami, H. (1998). Concepts and Measurement in Agriculture. Journal of Agriculture Economy and Development, 18: 7-31.
Shajari, S. and Soltani, Q. (2000). The estimation of labor demand and elasticity of wheat supply using profit function in Fars province. Proceedings of
papers presented in the third conference of agriculture economics. 2nd volume. 699-712.
Statistics Centre of Iran (2011). Statistical yearbook of Country. Deputy of management and planning. Tehran
Sidhu, S.S. and Baanate, C.A. (1979). Farm-level fertilizer demand for Mexico wheat varieties in the Indian Punjab, American Journal of Agricultural
Economics, 61: 455-462.