This work has developed a theoretically consistent model of a farm household's choice between working on-farm and working off-farm and the effects of that choice on farm investment choices. The theory demonstrates the potential for wages driven by local economic conditions to be more important to dairy farm investment decisions than characteristics of dairy farms and farmers. The switching regression model developed from the theory is then tested with data from a representative sample of Wisconsin dairy farms. The econometric results demonstrate the importance of wages to farm investment decisions.