We estimate off-farm labour participation and quantity supply models by using Swiss FADN data of 2047 randomly chosen individual farm households for the year 2017. Besides various farm and farmer characteristics, the effects of two kinds of direct payments on off-farm labour allocation decisions are analysed and related to farm household income classes. The results show that diversification into off-farm employment is a highly relevant strategy used by Swiss farmers. Direct payments promote the engagement in off-farm activities, thus providing a complementary rather than a substitutive income source especially for low-income farmers. For biodiversity payments, however, a substitution effect is observed when they exceed a threshold share on total farm revenues. We question whether farm-income-related goals of agricultural policies can be reached by direct payments. To not incentivise a de-professionalisation in the farming sector, the eligibility for direct payments should closely be linked to a high education level in farming.
