AFTER arduous hours harvesting forage, managing livestock and milking cows, family members who work on the family dairy farm make $22,000 less each year than comparable hired managers.

However, beyond money, these family managers are compensated with "socioemotional wealth," according to new Cornell University agricultural economic research.

"While $22,000 seems like a large penalty, you have to remember that this includes only the labor that a family member provides to the farm," said Loren Tauer, a professor with Cornell's Charles H. Dyson School of Applied Economics & Management.

Tauer published "Socioemotional Wealth in the Family Farm" with lead author Jonathan Dressler of MetLife's Food & Agribusiness Finance in a forthcoming issue of Agricultural Finance Review.

"Although the literature discusses how family members may accept a lower salary working for the family business than they could earn doing comparable work in a non-family business, there are non-financial rewards they experience working for the family business," Tauer said.

"Family members like to work for the family farm, as it brings prestige and satisfaction by working with siblings, cousins and parents," Tauer explained. "The socioemotional part is that these family members feel an attachment to the dairy farm. It's a 'warm and fuzzy' feeling."

Further, Dressler explained that socioemotional aspects of running a dairy farm "create a sense of pride and belonging as, collectively, each family member is contributing their effort toward a common family goal."

Dressler and Tauer examined dairy farm income in 1999 through 2008 and found that New York farm managers' median salaries varied widely -- from $41,884 in 1999, to $64,466 in 2004 and $74,986 in 2005 (all adjusted for inflation to 2008 dollars).

While the family farm managers were paid, on average, about $22,000 less, family members were compensated in other ways, such as with equity in the family business, which includes land values and the value of the operation -- and those have risen over time.

For family farms, Dressler and Tauer estimated a 5% current return to equity and asset appreciation of 10%, for a total return to equity of 15%. With "sweat equity," Tauer explained, children eventually inherit farms or are given an opportunity to purchase farms at a low estimate of the farms' value. That future ownership opportunity and the chance to work with family members offset the reduced annual compensation.

Volume:87 Issue:d3