Average Canadian farm incomes tend to be consistently lower than non-farm incomes. Many reasons, including aggregate overproduction are advanced as possible explanations of the above problem. This thesis attempts to determine whether overproduction has been one of the causes of the farm income problem. The bulk of information used in this study was time series data as prepared by the Dominion Bureau of Statistics for the years 1935 to 1965. A model was constructed to test two related hypotheses regarding the presence of excess capital formation and its effect on income and overproduction. The basic findings of the study were that capital formation was not greater than required to produce an aggregate supply of agricultural products equal to aggregate demand. The growth in aggregate supply and aggregate demand were found to be very similar for the period 1935 to 1965, thus indicating that the farm income problem was not aggravated during this era by overproduction. In subsequent analysis, a broader view of the problem was undertaken. To begin, it was established that per capita farm incomes have been growing at a rate similar to that of non-farm incomes. In addition the so called "cost-price squeeze" was not found when the entire 1935 to 1965 period was observed but rather was only found in subperiods. Factor share analysis was used to show that agricultural capital offered returns at least equal to the opportunity costs of capital. / Land and Food Systems, Faculty of / Graduate

The basic objectives of this thesis are to build an earnings function for farm incomes of Canadian farm operators, and estimate the rate of return to schooling. It is hypothesized that the low levels of farm income are related to the low investment in education by farm operators. If reasonable estimates of positive returns to schooling are found, they will be useful for policy makers in considering the improvement of the quality of farm operator labour via schooling, as an alternative measure to increase farm income. To achieve the goals of this study, an earnings function is built for the group of entrepreneurs, in particular the farm operators. As a test of functional form a digression is made and a value added approach discussed and utilized as an alternative way of computing the contribution of schooling to farm income. Although both methods yielded significant estimates of the return to schooling comparable to previous studies, the value added approach was found to be a better specified formulation with respect to estimating the productivity of schooling in farm production. The estimate of the marginal product of schooling using the earnings function approach was found to be higher as we concentrated on the full-time farmers. For the value added approach, the estimates differed as we varied the input specification, being higher as we decrease the number of decision variables in the estimating equation. Estimates for both models however have their respective biases and shortcomings attributable mainly to the variables omitted in both specifications. These estimates could be improved with the availability of better specified variables and use of an alternative analytical procedure. In addition to providing strong evidence that schooling is a significant determinant of farm incomes, this study also led to another important conclusion. Using a transformed labour variable in the value added function at the census division level led to an important finding that a similar output-input relationship exists in the agricultural sectors of both the U.S. and Canada. Specifically the relationship was identical for the elasticities of output with respect to labour, with respect to education (schooling), and with respect to the weighted labour variable (product of labour and schooling) values of selected years. / Land and Food Systems, Faculty of / Graduate