Farm households diversify their income sources into off-farm wage employment motivated by low farm income and availability of surplus family labor, whereas they enter into off-farm self employment to earn an attractive return. Farm households have upward-sloping, although inelastic, off-farm labor supply curves. Therefore, increasing the availability of off-farm activities and improving the wage rate received by farm households can expand the economic activity of the Tigray Regional State. Due to entry barriers, relatively wealthy farm households may dominate the most lucrative rural non-farm activities such as masonry, carpentry and petty trade. Hence the underlying factors that hinder participation in non-farm activities such as credit constraints and lack of skill may have to be addressed through the provision of credit and technical training for the poor.