We analyze the factors that affect farm households’ labor allocation decisions among on-farm activities, off-farm business and off-farm labor, explicitly considering the variability of agricultural income. A bivariate two-part model was employed to account for the possible correlation in allocation decisions between off-farm business and off-farm labor, which is supported by the empirical results. This approach also has an advantage in relaxing some of the restrictions of Tobit model. Using the farm-level panel data from 2013 to 2016 in Korea, we find that the variability of agricultural income decreases the farm households’ possibility of off-farm business participation. At the same time, we also find that agricultural income variability tends to increase the off-farm business income or off-farm labor income of farm households who already participated in off-farm business or off-farm labor. Other factors such as a debt-to-income ratio, a subsidy-agricultural revenue ratio, insurance premium, and etc. are also found to play critical roles in labor allocation decisions of farm households.