In 2013, only 16% of households in Oman have reported agriculture as the main occupation and 53% have reported non-agricultural government employment as the main occupation, whilst the balance is employed in the private and non-formal sectors. This situation is hypothesized to be related to the labor market; where government legislated higher remuneration in the non-agricultural government sector vis-a-vis agricultural sector, influences Omani farmers to move to non-agricultural employment, causing reduced cultivated area and farm production. The study uses operations research methods to quantify the impact of labor market policies on agricultural employment, farm gross income and land use intensity. In an national average farm of 0.9 ha with 1.33 persons of family labor available, only 75% land use intensity is achieved, with a gross income of 1061 OMR/Year/Household, which is below legislated minimum income for low skilled employment in the non-agricultural government sector (4632 OMR/Year/Household). The household gross income would increase to 5304 OMR/Year/Household with non-agricultural employment of 1 person and 0.33 persons in agricultural employment, which explains low employment of Omani's in agriculture. Farms of 2.1 ha (5 Feddans), with availability of 1.33 family labor earns a gross return of 2502 OMR/Year/Household, which is again less than the salary in the non-agricultural government sector. However, with the current government policy of allowing to hire 1 expatriate laborer per 2.1 ha with 1 Omani person in non-agricultural employment and 0.33 family labor in agricultural employment, gross income increases to 6414 OMR/Year/Household and further if temporary labor hiring is allowed at peak farm labor requirements, gross income could be increased to 6632 OMR/Year/Household. The current policy on hiring 1 expatriate labor per 2.1 ha along with non-agricultural employment of Omani labor is in the short-run optimal.