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Immigration Policy and its Possible Effects on US Agriculture

8 June 2012, at 12:00am

Changes being considered would affect the market for hired farm labour. Analysis by the Economic Research Service looks at the possible effects of a decrease in the supply of unauthorised labour in all sectors of the US economy – including agriculture – and an increase in the number of temporary non-immigrant and foreign-born farm workers.

The 112th Congress is considering a variety of proposed changes to US immigration law as it relates to foreign-born farm workers. Some of these proposals would create additional opportunities for persons from other countries to work legally in US agriculture, while others would use different methods to enforce existing US immigration restrictions.

Any of these proposals, if enacted, is likely to have a substantial impact on US agriculture and the market for hired farm labour. Labour is a major input for many agricultural sectors, and persons not authorised to work legally in the United States constitute a large share of the farmworkers employed by US agriculture.

A recent ERS study considers two possible changes in the supply of foreign-born farmworkers: (1) a 156,000 person increase in the number of temporary non-immigrant foreign-born farmworkers, such as those admitted under the current H-2A Temporary Agricultural Program, and (2) a 5.8-million person reduction in the number of unauthorised workers in all sectors of the economy, including agriculture. The study quantifies the possible effects of these hypothetical scenarios on agricultural output and exports, the agricultural and non-agricultural job markets, and the economy as a whole.

Policy-makers are considering changes to US immigration law that would affect the market for hired farm labour — including mandatory use of an Internet-based employment eligibility verification system and an expanded programme for temporary non-immigrant foreign-born farmworkers.

Labour is an important input to US agriculture — accounting for about 17 per cent of the sector’s variable production expenses and roughly 40 per cent of such expenses for farms specialising in fruit, vegetables or nursery products.

ERS analysis quantifies the possible effects of a decrease in the supply of unauthorised labour in all sectors of the US economy — including agriculture — and an increase in the number of temporary non-immigrant foreign-born farmworkers.

Farm Labour’s Importance to US Agriculture

During 2006-10, hired farm labour accounted for 17 per cent of variable production expenses in US agriculture and even higher proportions of such expenses in more labour-intensive sectors, such as vegetables (35 per cent), nursery products (46 per cent) and fruit (48 per cent) (Figure 1).

The farm labour situation is complicated, however, by the fact that many US farmworkers lack the immigration status needed to work legally in this country. Analysis conducted by Daniel Carroll, Annie Georges and Russell Saltz using the US Department of Labor’s National Agricultural Workers Survey indicates that over the past 15 years, about half of the hired workers employed in US crop agriculture were unauthorised, with the overwhelming majority of these workers coming from Mexico. Similar survey-based information on immigration status is not available for workers in livestock and dairy production.


Hired labour accounts for a large share of production costs for some crops

What Has Been Introduced in the 112th Congress?

Several bills related to immigration and farmworkers were introduced in the 112th Congress, two of which are discussed here. The Comprehensive Immigration Reform Act of 2011 (S. 1258) incorporates many elements of the Agricultural Job Opportunities, Benefits, and Security Act (AgJOBS), a decade-old proposal crafted by worker advocates and agricultural employers that was last introduced as a stand-alone bill in 2009. Several of its provisions make changes to the Federal Government’s H-2A Temporary Agricultural Program that might increase the programme’s attractiveness to prospective employers. The H-2A programme, as described by the US Department of Labor, “establishes a means by which agricultural employers who anticipate a shortage of domestic workers can bring in non-immigrant foreign workers to the US to perform agricultural labour or services of a temporary or seasonal nature.” In fiscal year 2011, a total of 68,088 positions in the programme were certified. Use of the H-2A programme has decreased in recent years, and the number of certifications now corresponds with roughly one-tenth of hired farm labourers, according to USDA’s Farm Labor Survey.

One of the bill’s proposed modifications to the H-2A programme concerns the adverse effect wage rate (AEWR), a wage rate that is determined by the US Department of Labor so as not to affect adversely the employment opportunities of US citizens and legal residents who want to perform farm work. Employers must pay their H-2A workers the highest of the Federal or State minimum wage, the prevailing hourly or piece rate, the agreed-upon collective bargaining rate, or the AEWR. For 2012, the AEWRs range from $9.30 per hour (Arkansas) to $12.26 per hour (Hawaii) and average $10.40 per hour for the 50 States.

The current bill would freeze the AEWR for each State at its level on 1 January 2011. If Congress does not establish a new wage standard for the H-2A programme within three years of the bill’s enactment, then the AEWR would rise by the average of the consumer price index during the previous two years but by no more than four per cent on an annual basis.

Another proposed modification to the H-2A programme would allow goat herders, sheep herders and dairy workers to participate and eventually apply for permanent residency under certain conditions. Currently, the H-2A programme is limited to temporary or seasonal workers, which largely excludes dairy, livestock and nursery operations from participating.

A second bill introduced to the 112th Congress, the Legal Workforce Act (H.R. 2885), would require all employers, agricultural and non-agricultural, to use E-Verify to confirm the employment eligibility of new hires. E-Verify is an Internet-based system operated by the US Department of Homeland Security in partnership with the Social Security Administration. The system enables employers to determine the eligibility of their employees to work in the United States using the information reported by employees on their Form I-9, Employment Eligibility Verification.

The Legal Workforce Act would give agricultural employers 36 months to comply with its E-Verify mandate. Currently, the Federal Government does not require all private-sector employers to confirm the eligibility of their employees using E-Verify, although several State governments do. Some farm groups have expressed concern that mandating E-Verify – without some sort of new or expanded programme for foreign-born, agricultural workers who are not currently authorised to work in the United States – would adversely affect many agricultural employers.

Simulation Analysis of Immigration Policy and US Agriculture

ERS has not attempted to estimate the exact effects of the two proposed bills mentioned in this article. Instead, ERS has used a computable general equilibrium (CGE) model to analyse the impact on the US economy under two alternative scenarios in which the supply of foreign-born labour increases or decreases appreciably. A CGE model is a type of economic model that uses interrelated equations to represent an entire economy—agricultural and nonagricultural—and the interactions among its parts.

The model used in ERS’s study – the US Applied General Equilibrium (USAGE) Model – differentiates the US workforce into three categories according to immigration status:

  1. US-born
  2. foreign-born, permanent resident: a person with the US immigration status of permanent resident (including naturalised citizens) and thus legally authorised to work in the United States, and
  3. foreign-born, not a permanent resident: a person without the US immigration status of permanent residency.

The majority of persons in this third category are not legally authorised to work in the United States. For this reason, the term “unauthorised” is sometimes used to refer to people in the third category, and the term “authorised” is sometimes used to refer to people in the first and second categories. The third category, however, also includes foreign-born persons with non-immigrant visas, such as H-2A workers, who are legally authorised to work in the United States during a specified period but are not permanent residents of the United States.

With these categories in place, researchers used the model to generate long-run (15-year) economic projections for the United States under a base forecast and two alternative labour supply scenarios – one in which the number of temporary non-immigrant, foreign-born farmworkers increases and one in which the number of unauthorised workers in all sectors of the economy decreases. The base forecast simulates how the economy would evolve under current laws and policies and serves as a benchmark for evaluating the two scenarios.

Like many CGE models, the USAGE model achieves a long-run equilibrium, in which all labour and capital resources are nearly fully employed. Thus, the simulations reported here do not apply to the current economic environment, in which about 8.1 per cent of the US workforce is unemployed (as of April 2012). Instead, the model results describe hypothetical long-run scenarios in which the US economy is much closer to full employment and has an unemployment rate of about five per cent.

In the first scenario (increased farm labour supply), the number of temporary non-immigrant foreign-born farmworkers is assumed to increase by about 30,000 in Year 1 of the simulation and 83,000 in Year 2. The growth rate for the number of such workers declines in subsequent years, with participation reaching 156,000 additional workers in Year 15. The additional workers are assumed to be available to all agricultural sectors, including those that have been traditionally excluded by the H-2A programme, and no constraint similar to the AEWR is placed on their wages.

In the second scenario (decreased unauthorised labour supply), the unauthorised workforce – agricultural and non-agricultural – is assumed to decrease by 2.1 million in absolute terms over the first five years of the scenario. Under this scenario in Year 5, the unauthorised workforce in the US economy as a whole is 4.0 million people smaller than in the base forecast. Growth in the unauthorised workforce resumes thereafter but at a slower pace than in the base forecast. By Year 15, the projected size of the unauthorised workforce is 8.5 million, compared with 14.3 million in the base forecast, a difference of 5.8 million, or 40 per cent.

Modelling Results

The results from the increased farm labour supply scenario conform to basic economic principles when the supply of one factor or input of production – such as labour, land or machinery – becomes more plentiful. Greater availability of temporary non-immigrant foreign-born farmworkers leads to their increased employment at lower wages. This, in turn, results in long-run increases in agricultural output and exports, above and beyond the growth projected by the base forecast. The increases in output and exports are generally larger in labour-intensive sectors such as fruit, tree nuts, vegetables and nursery products. By Year 15 of the scenario, these four sectors experience a 1.1- to 2.0 per cent increase in output and a 1.7- to 3.2 per cent increase in exports, relative to the base forecast. Less labour-intensive sectors, such as grains, oilseeds, and livestock production, tend to have smaller increases, ranging from 0.1 to 1.5 per cent for output and from 0.2 to 2.6 per cent for exports.

Accompanying this additional growth in agricultural output and employment, however, would be a relative decrease of about 5.7 per cent in the number of US-born and other permanent residents employed as farmworkers and a 3.4 per cent relative decrease in their wage rate. In the model, US-born and foreign-born permanent resident workers are assumed to compete with foreign-born temporary non-immigrant workers in the labour market. A 3.4 per cent relative decrease in the wage rate does not mean that the wage rate is projected to fall by 3.4 per cent over the 15-year period of the projection. Instead, it means that the wage rate in Year 15 is projected to be 3.4 per cent lower in the increased farm labour supply scenario than in the base forecast.

The long-run results from the decreased unauthorised labour supply scenario show a reduction in the labour supply to agriculture with effects on agricultural output and exports that are opposite in sign from the increased farm labour supply scenario and larger in magnitude. Fruit, tree nuts, vegetables and nursery production are again among the most affected sectors but with long-run relative declines of 2.0 to 5.4 per cent in output and 2.5 to 9.3 per cent in exports. These effects tend to be smaller in other, less labour-intensive, parts of agriculture – a 1.6- to 4.9 per cent decrease in output and a 0.3- to 7.4 per cent decrease in exports.

As part of the decreased unauthorised labour supply scenario, the number of unauthorised workers employed as farm workers falls by between 34.1 and 38.8 per cent, depending on modelling assumptions, relative to the base forecast for Year 15. At the same time, the number of farm workers who are either US-born or foreign-born, permanent residents increases by about 2.4 to 4.0 per cent in the long run, compared with the base forecast, and their wage rate increases by 3.3 to 7.5 per cent. However, the increased farm employment of US-born and other permanent resident workers is not sufficient to offset the decrease in unauthorised farmworkers. As a result, the total number of farmworkers decreases by 3.4 to 5.5 per cent.

Some observers question whether a reduction in the number of unauthorised workers would benefit or harm US-born and other permanent resident workers. Model results suggest that wages would rise (relative to the base forecast) in some lower paying occupations where unauthorised workers are common, decrease slightly in many higher paying occupations, and decrease on average.

Several factors account for the slight decrease in earnings. First, the decrease in the supply of unauthorised labour leads to a long-run relative decrease in production, not just in agriculture but in all sectors of the economy. This, in turn, reduces incomes to many complementary factors of production, including US-born and foreign-born, permanent resident workers in higher paying occupations. Second, with the departure of so many unauthorised workers, the occupational distribution of US-born and other permanent resident workers necessarily shifts in the direction of more hired farm work and other lower paying occupations, such as food service, child care and housekeeping, and away from higher paying occupations (a much larger category). The effect of this compositional change is to reduce the average real wage for US-born and foreign-born, permanent resident workers in all sectors of the economy, even as real wages in many lower paying occupations rise.

In the long term, overall gross national product accruing to US-born and foreign-born, permanent residents would fall by about one per cent, compared with the base forecast. This result indicates that the negative economic effects generated by the departure of a significant portion of the labour force outweigh the positive effects on the wages of US-born workers and other permanent residents employed in lower paying occupations. This conclusion, however, might be different in a model that reproduced current levels of unemployment, rather than describing a long-run equilibrium in which the economy is much closer to full employment.

June 2012