In this paper, I test and reject the separability of production and consumption decisions of agricultural households in Ethiopia, using data from a rural household survey conducted in 1994 and an estimated labor demand equation. I also elicit socio-demographic and asset variables that are positively linked with agricultural labor demand. These results reflect the limited development of fully organized labor markets in rural Ethiopia. They also imply that price subsidies, taxes and other purely market-driven agricultural policies may have only limited or perverse impacts. They should be complemented by policies directly affecting household decisions, such as food aid, technology transfer, free supply of fertilizers and so on.