For the past century there has been an important restructuring of the economies in Europe and with it a reallocation of labour and other factors. An important element of this has been an outflow of labour from agriculture. The creation of the EU and the introduction of the CAP has affected this process but not halted it. In this process, the functioning of rural labour markets are extremely important as they will determine the allocation of labour across different economic activities, and as such, affect rural incomes and development. The integration of rural areas in general labour markets can contribute importantly to rural household incomes and to the competitiveness of farms and the agricultural sector as a whole. However, studies also show that, in many regions, such markets do not work perfectly and, moreover, that it is crucial to take into account local labour market institutions, variations in household characteristics, etc… in order to get a good understanding of the functioning and the constraints in these rural labour markets.
Hence, in addition to collecting and processing information to develop a comparative analysis of rural labour markets, the Factor Markets project will contribute to new insights on several aspects and issues related to EU rural labour markets:

• In order to understand the supply of labour in EU rural areas the Factor Markets project will develop a collective household model to model the labour supply decision-making.
• The model will further be developed to take into account the importance for home production in rural households in their labour supply decisions.
• The Factor Markets project will also carefully model the role of off-farm employment as many households in rural areas allocate labour to activities on and off the farm.
• Another issue that the Factor Markets project will focus on is the role of “non-income factors” in determining inter-sectoral labour reallocation.
• In order to understand the functioning of rural labour markets in the EU, and especially in some regions, the Factor Markets project will explicitly take into account labour market imperfections and transaction costs.
• To correctly measure the adjustments in rural labour markets, the Factor Markets project will explicitly account for differences in effective labour costs and productivity between family labour and hired workers.
• For the Factor Markets project, a set of existing models of European agriculture (LEITAP, CAPRI and AgriPoliS) will be further developed as a major integrative and innovative component of the study.