How Immigration Policy Could Affect Agriculture

July 27, 2012

A large reduction in the number of unauthorized workers in all sectors of the U.S. economy could lead to lower output and exports in both agriculture and the broader economy, according to a recent study from the U.S. Department of Agriculture’s Economic Research Service (ERS).

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A large reduction in the number of unauthorized workers in all sectors of the U.S. economy could lead to lower output and exports in both agriculture and the broader economy, according to a recent study from the U.S. Department of Agriculture’s Economic Research Service (ERS). The study sought to explore the economic implications of shifts in foreign-born, hired farm labor as a result of changes in immigration laws or policies.

In the report, the researchers generate long-run (15-year) economic projections for the United States under a base forecast and two alternative labor supply scenarios – one in which the number of temporary nonimmigrant, foreign-born farmworkers increases by 156,000 and one in which the number of unauthorized workers in all sectors of the economy decreases by 5.8 million. The base forecast simulates how the economy would evolve under current laws and policies and serves as a benchmark for evaluating the two scenarios.

Reducing the number of illegal laborers, say the researchers, would hit the fruit, vegetable, and nursery sectors hardest, resulting in long-run declines of 2.0 to 5.4% in output and 2.5 to 9.3% in exports, compared with the base forecast. With fewer available employees, wages for unauthorized workers would also be affected and would likely increase in relative terms from 13.6 to 39.8%.

But a decrease in the size of the unauthorized labor force would affect not only agriculture. The U.S. economy as a whole would be affected, too. The downward shift in occupation for workers who lost higher paying jobs and took the lower paying jobs formerly filled by unauthorized workers would lead to a long-run relative decrease in the average real wage of U.S. born and other permanent resident workers of 0.3 to 0.6%. And overall income accruing to authorized residents would fall by about 1%, compared with the base forecast.

“Our second scenario directly reduces the amount of labor available to agriculture, as well as to construction, hotels and restaurants, and other sectors that use significant numbers of unauthorized workers. This loss of labor leads to a decrease in the long-run level of production, and that reduces incomes to U.S. business and land owners. The effects on the wage levels of U.S.-born (and other authorized) workers are more complicated. Workers in so-called low-skilled occupations, who compete with unauthorized labor, would see their wages rise,” says Dr. Thomas Hertz, an economist for ERS and study co-author.

However, workers in higher-skilled and higher-paid occupations would see their wages fall somewhat, says Hertz. This occurs because of the overall reduction in the size of the economy and hence in the demand for their labor. These long-run results assume that the economy is operating at nearly full employment and cannot be applied directly to the current situation in which 8% of the labor force is unemployed.

On the flip side, if the employment of temporary nonimmigrant agricultural workers, such as those participating in the H-2A Temporary Agricultural Program, were to expand, agricultural output and exports would increase, while the real wages of agricultural workers would decrease. The H-2A program is a way for agricultural employers who anticipate a shortage of domestic workers to bring nonimmigrant foreign workers to the U.S. in a temporary or seasonal nature. This expansion would have little effect on the economy outside of agriculture.

Interestingly, this study comes at a time when the largest wave of immigration in history from a single country to the U.S. may be drawing to a close. Over the past four decades, the number of Mexican-born persons living in the United States has increased to about 12 million. Now, net migration flows from Mexico to the U.S. have declined to roughly zero and may be negative, say new data from the Pew Hispanic Center. The data reveal the change to be a result of several factors, including a slowing of the U.S. economy, heightened border enforcement, and better economic conditions in Mexico. About 30% of all current U.S. immigrants were born in Mexico.

“We have already seen the growth rate in the number of unauthorized Mexican-born people in the U.S. switch from positive to negative. The Pew study estimates that the number of such people has fallen from a peak of 7.0 million in 2007 to 6.1 million in 2011, a reduction of 13 percent. By comparison, the  scenario in our report starts with a reduction in the number of unauthorized workers from all counties that is about twice as big as this in percentage terms. After that, we assume that growth in the unauthorized population resumes but stays below its prior trend, ending up 40% lower than it would otherwise have been in year 15. So our scenario does not exactly capture the current situation – it is a bigger initial reduction in the number of workers. But it should give a general idea of what the effect of a reduction in unauthorized labor supply to farming would be in a full-employment economy in the long run,” says Hertz.

At the store level, consumers probably won’t feel the effects of immigrant populations moving in either direction. Other studies have estimated the share of consumer food prices that is accounted for by wages paid to farm workers, and that share is pretty low, says Hertz, so the effect on consumer budgets is likely to be small. Perhaps more pressing is the issue of who will harvest the crops if there are not enough unauthorized workers to do so.

According to another recent study from ERS, as labor costs rise, more farms will turn to mechanization if mechanical alternatives to hand labor are available. This may result in fewer or larger producers of certain commodities such as raisins, a crop that is not yet completely mechanized. Crops that compete in the export market may lose market share unless there is a breakthrough in mechanization. And rising wages could result in more imports thanks to cheaper labor available abroad. Grower response to these numerous pressures will differ depending on the commodity in question. Some of the rising costs, especially when it comes to items like strawberries, with little competition from imports, could be passed onto consumers.

Hired farm labor is extremely important to U.S. agriculture, accounting for about 17% of production expenses overall and 40% of these expenses for fruit, vegetables and nursery products. Over the last 15 years, about half of the hired laborers employed on U.S. farms lack the legal status to be here.