Farm Labor Shortages: How Real? What Response

By Philip Martin, Mark Krikorian November 2007

Teleconference Transcript

The Center for Immigration Studies

November 2007


Speakers:

Mark Krikorian, Executive Director, Center for Immigration Studies

Philip Martin, Professor of California Resource Economics, University of California, Davis


MARK KRIKORIAN: Phil is going to be speaking today about the report he did for us on this issue of shortages of farm labor. The AG jobs bill in Congress may be voted on this week, it may not, the prospects for actually don't look that good. Regardless what happens to the AG job measure it still an important question: "Is there agricultural labor shortage?" this is something we hear about all the time the crops are rotting in the fields and etc, etc. And Phil took a pretty close look at the validity of these claims and you know what the - basically what the story is. Phil Martin is uniquely qualified to do this as an economist at the University of California Davis, a Professor of California Resource Economics and someone who has been writing and studying this issue for many years. So I have Phil give some summary of his findings and then we'll go to Q & A. So Phil

PHIL MARTIN: Ok. Thank you Mark and good morning everyone. The report actually doesn't say AG jobs or H-2A anywhere. It is looking at the issues of whether or not there are farm shortages and if there are, how large are they and what should be done about them. So let me make four points briefly before we go to Q & A.

The first is that there is no government or economic definition of farm labor shortage. So no government document has any kind of official definition of what a labor shortage is. As you know the government does have something that quasi measures labor surpluses, they have labor surplus areas when the unemployment rate is about one and a half times the average for the country. But there is no government definition of labor shortage. There is also no economic definition of labor shortage because in a market economy if we have a smaller -- let's say we have fewer peaches because there was a freeze this year in the Carolinas and Georgia --then we expect the price of peaches to go up and that means that some people switch to buy apples and low and behold the supply and demand for that smaller crop of peaches comes into balance. That's something that happens every year in particular markets and that's what a market economy does. Supply and demand both adjust in response to price and wage signals and that's what restores equilibrium. Sometimes there can be lags especially in the labor market because the IT boom can take-off suddenly and it may take time to train computer programmers so there's lots of literature on how hard it has been to predict cycles whether its in healthcare or teaching or IT. And that's a whole different topic but it is in recognizing that this idea that we expect changing wages to bring supply and demand into balance. Sometimes it doesn't work as smoothly as it should. But the question is "Does agricultural exhibit any of these classic cases of supply and demand being out of balance in the labor market?"

Since there is no definition one workable or testable definition is to say that if an industry has a labor shortage than employment has to be going faster than average and wages have to be to be going up faster than average. In fact wages in agriculture are not going up extraordinary fast and employment, especially for the workers hired directly by farmers has been trending down, not up. But perhaps what's most relevant here that the average hourly earnings of workers hired by farmers has been going up slower in California and Florida than it has been in the United States as whole over the last 15yrs and, over course, half of U.S. fresh fruit and vegetable production is in the states of California and Florida.

So the first point is we don't have a government or economic definition of labor shortage. And the classic indicators that we would look for don't show any kind of overall labor shortage in agriculture. In the report you will notice that I try to give a flavor of what some people mean when they say "labor shortage" since there is no definition, then each person saying labor shortage can mean a different thing. And someone can mean labor shortage when he wants 30 people working and has 20. The real question is "not that you want something but what do you to do about it?" What's the response and you'll see that a very usual response is to say, "Well no I did not raise wages because I know that if I raise wages I won't get any more workers." That's the kind of thing that's very difficult for us to do much with in economics because we're looking at what actually - what people do as opposed to do what they say.

So point one is the labor shortage one, point two is what's happened to the production of fresh fruits and vegetables. The complaints about labor shortages have been cropping up starting in the border areas, in the fall of 2003 - 2004, when the border patrols started stopping buses that were leaving the port of - ports of entry and driving to especially vegetable fields in Arizona and California. And the argument was that because the buses were being stopped, as you probably know, in the winter vegetable areas many of the harvest workers are so called green card commuters, legal immigrants who live in Mexico and come across the port of entry early in the morning. They board buses and then drive an hour or 2 or 3 hours to do the work and then go back home at night. Some of those green card commuters are aging and some of the people on those buses were workers who used, who have false documents, and when the border patrol started stopping buses those people sometimes were apprehended. Therefore it makes sense for younger workers with false documents, if they succeeded in getting across the border, to move away from the border where wages tend to be higher and there's less risk of apprehension.

So if in fact we had too few workers coming across, then one might have expected that there would be less vegetables planted, and I put the production data in the report. Basically that did not happen. The production on the imperial county side, for example, stayed roughly the same - It actually rose a little bit in 2005 - 2006. And that sort of reinforces the general idea that if there is a market for the commodity, farmers wind up planting to take advantage of that particular market. The, perhaps, most telling example of that is with sweet cherries and strawberries. Both are very labor intensive crops and they're perennial crops. So it's crops that you plant now and you're not going to get a return in the case of cherries for several years or in the case of cherries for a year or so. And the production, the acreage, of both of those increase sharply, primarily because the demand is increasing. So it just simply says that if there's a market, people plant and assume that there will be a labor force available. So number two is the production of fruits and vegetables including the labor intensive fruits and vegetables has not gone down in response to fears of labor shortage if anything it's gone up.

Number three is there are lots of efforts to mechanize. Lots, there not so much because of labor shortages but because the cost of computing power and robotics, etcetera, has gotten cheaper and the mechanization is short of at a very on certain state in many of these commodities. In the commodities where mechanization has gone faster, say in wine grapes, the driving force has been much more the non-labor aspects rather than labor aspects. The machines can harvest at night, that means the temperature difference for the grapes will be less and that will produce a higher quality wine. So many of, at least California's wine grapes, are harvested at night for quality as much as any kind of labor considerations. There are machines in various stages of development to deal with everything with from lettuce to oranges, but the report explains that mechanization in agricultural is a complicated process. Primarily because the crops come from a farmer and go to a packer or processor and that packer or processor normally is setup to deal with machine harvested fruit or vegetables, or hand harvested but not both. And so therefore it is often difficult for one farmer alone to mechanize a particular harvest. And so the report reviews the mechanization of the processing tomato harvest which occurred at the end of Bracero Program, and which figure prominently in the arguments for why the Bracero Program should not be extended in the early 1960's. In other words the President Kennedy said he wanted to end the Bracero Program. Tomato farmers said if you do we won't be able to produce processing tomatoes anymore. And I think the main lesson that comes from that mechanization experience was - is that it was very hard for people close to the commodity to understand exactly how the mechanization that occurred actually took place.

And the second lesson that that comes out of that experience is that government played a key coordinating role. Because there is always an argument in agriculture between growers who are often paid by weight and packers or processors who look for reasons to pay growers slightly less. And when you're delivering a commodity that is worth, as in the case of tomatoes, about two and a half cents a pound for processing tomatoes to the grower, then if your delivering them in fifty pound lugs and the processor rejects one that cost you a dollar twenty five. If you're delivering them in twenty five pound tugs that's twelve hundred dollars. So you need a mechanism to deal with what's an age-old conflict. And in the 1960's what the government did was setup sampling stations that took random samples and on the basis of those random samples decided what quality those tomatoes were and in a effect what price would be paid. So something that has nothing to do with labor but that's very important for mechanizing is this coordination mechanism that deals with the processor/grower kind of interaction.

So we've done the definitions, the production, the mechanization issue, which remember needs that coordination and also probably also need higher wages and further development. But most people say could happen but maybe not quite as quick as in tomatoes but none the less would with further pressure.

The final point is "What does it all mean to consumers?" And in the answer is not very much. Consumers spend on average about one dollar a day on fresh fruits and vegetables, of that one dollar about eighteen cents goes to farmers. That is farmers get a very small share of that one dollar spent on a pound of apples or a head of lettuce and of course farmers don't give all of what they get to farm workers. Labor costs are typically less than a third of farmer's revenue, so that means on a one dollar head of lettuce or a one dollar pound of apples, farm worker wages and benefits are about six cents. So the little exercise that I worked out is to say: "what would happen if wages rouse for farm workers at the same rate that they did at the end of the Bracero Program in the 1960's?" And at that time when the Bracero Program ended there was a scramble for workers in the mid 1960's, there was a lot of mechanization, and the United Farm Workers and their first contracts with grape growers got a 40% wage increase. So a 40% wage increase in one year, taking the wages from $1.25 and hour to $1.75 and hour. If there were to be another 40% wage increase and assuming there was no mechanization in response, that is that entire wage increase would be passed on to consumers. You can see that the instead of six cents in a one dollar pound of apples or a head of lettuce it would be eight and a half cents and if you multiply that out for a family, for its spending on fresh fruits and vegetables, the increase costs would be about eight dollars a year. So it's a relatively small increase in cost. Primarily because people don't spend very much on fresh fruits and vegetables, and then farmers don't get a very big share of what they do spend and then farm workers get a relatively small share, well they get a third, of what farmers revenue is.

So the overall impact on consumers of changes in farm wages is very small. And I would suspect that most people, most consumers, would not realize that we had hurricanes in Florida in the last several years, which drastically reduced the acreage in production of oranges. Or that we had a freeze in California in January of 2007 that similarly sharply reduced production of fruits and vegetables. Or there was a freeze in the Carolinas and Georgia this year that reduced production of peaches and other crops. So in general consumers tend to be pretty insulated from what can be relatively sharp drops or sharp changes in production. Primarily because the fruits and vegetables come from many places and normally if they don't come from one place they will come from another and prices don't change very much. So those are the one, two, three, four things: no definition, production is up, the complications surrounding mechanization, and the relatively small role of farm wages in consumer budgets. So I think at this point it might be instead of me keeping talking to respond to questions.

MARK KRIKORIAN: Okay. The guy that's managing it for me is starting the program because those of you that want to ask questions will be able to un-mute each of you in turn. Just a second. Just a second. Well, actually Phil, while he's doing that I actually had a quick question about this issue of off shoring production to farmers moving to Mexico. This is often been raised as short of a specter that would result from immigration enforcement. Could you just talk for a second on that?

PHIL MARTIN: Let me just say a word about imports. The United States is both a importer and an exporter of fresh fruits and vegetables. We import almost all of our bananas, for example, we import many of our winter fruits, grapes and all the soft free fruits in winter months. We also export grapes when we produce. The most of the stories that I've heard about moving abroad involve producing vegetables in Mexico. And that is happening, we are producing for example much of the frozen process broccoli is grown in Mexico but that's been going on for probably the last two decades. What's new and what has gotten publicity is the fact that a few producers of lettuce and other vegetables have announced that they're moving to Mexico to get a legal workforce well in at least one case. Its probably important to keep in mind that lettuce imports from Mexico have been stable at about 1% of U.S production for the past five or six years. So it is true that we import lettuce from Mexico, but it's also true that there has been no change in the volume or the share of lettuce coming from Mexico, it's been about 1% since 2000. Will it grow? It might. There was a rush to Mexico in the early 1990's and some of those producers have returned to the United States, citing problems with everything from securing enough labor to food safety issues. So at this point in the normal, the normal reason to go off shore is to take advantage of climate differences. I mean the main competitive advantage of Mexico is climate, they can produce in the months of the year when most U.S. producers except in Florida are not producing and not so much labor costs. So far the business of off shoring has not effected what we consider mainstream U.S. production. That is U.S. production lets say that is when California is booming roughly between May and October that's highly unlikely there would be significant movement of that kind of production elsewhere.

The other thing you might add on this is that, you know we're negotiating a free trade agreement. I guess we've negotiated a free trade agreement with South Korea and one of the issues there was getting South Korea to open up its market, South Korea said for food security reasons we don't want to discuss rice, so rice was not discussed, and we also want to protect our very small citrus market in the south from imports. And of course we said that you should no do that, that's protectionist, if our people can produce citrus cheaper then your people can, you should open up to trade and let your citrus producers go and do something else that in which Korea has a comparative advantage. So these things cut both ways and sometimes when we negotiate with other countries we tell them not to worry about food security and open up to our commodities and whether or not, I mean, the big question with moving fresh vegetables to Mexico is going to be how its prepped, not as much a labor issue, it will be a big food safety issue, because of the outbreaks of e-coli that we've had from U.S. production actually in the last three or four years.

MARK KRIKORIAN: Ok, Thanks Phil. Now those of you that want to ask questions can press the star key on your telephone now, the star key, and you will be entered into a queue and because of whatever the glitch is we're not going to have your name but we we'll have the last four digits of your phone number. Well your whole phone number, but I'll call it out with the last four digits for who's ever turn it is next in the queue to ask a question and then we will un-mute the call for you and then you will be able to ask the question.

2558, I'm not sure who that is but whoever 2558 is now you've been un-muted, if you can ask you question. Oh are you there? Did you un-mute? Ok whoever has 2558 is the last 4 digits of the phone number. It's a 530 area code.

SUSAN: Hi, that's me.

MARK KRIKORIAN: Okay sorry go ahead. Who is this?

SUSAN: I'm Susan Farris from the Sacramento Bee.

MARK KRIKORIAN: Okay. Go ahead, Susan

SUSAN: I kind of an over arching question. And I came in a little late, so I'm sorry if you answered this I apologize, but I understand the report and I see what you're saying. I'm not - I don't understand how you can if anybody wants to try to take a leap to how this doesn't support the idea of the AGjobs bill or the immigration reform, I'm not sure how it does that because I mean from my observations what I see is people are stuck here, the immigrant workers who work in the fields, so that's why there's no shortages of people right now. There's kind of a workforce that's captive here and have been for a long time and it seems to me like you can say that that's facilitated the growth of vegetable production or fruit production. But if you regulate the need for workers and someway as the AGjobs bill proposes. Wouldn't that kind of fit into the schematic?

MARK KRIKORIAN: Phil.

PHIL MARTIN: Susan the two things to keep in mind, I think. As you know it's really hard to get your arms around the characteristics of the hired farm workforce. The department of labor data, department of labor that goes in this agricultural workers survey data, don't show the average age of the workforce getting older. Which is what would happen if the influx had stopped and people were trapped here and they're staying in agriculture. So every year you would think that labor force would get a year older. That's not what they're finding. They're finding that the typical, hired worker employed on crop farms is about a 27 year old Mexican born man. It's gone up to 27 and a half years. But over the last 5 years of course you wouldn't expect if there was no one else coming in, you would have expected that that age would have increased. The'

SUSAN: I'm sorry can I say something?

PHIL MARTIN: Yes

SUSAN: I wasn't saying that they weren't coming in. I think people have been coming in but there's just no shortage, people have been coming in. But they haven't been leaving.

PHIL MARTIN: Yeah, I guess that was the next thing I was going to say is: that means, you know, people are coming in and people are leaving. If your, I mean, I was looking at - we've been hearing about the starting point for this is, we've been hearing about farm labor shortages. What impacts has that had on wages or production? Now - and the answer is not much. In fact production of some very intensive commodities have gone up. Now if you're, if the question is: well you know why hasn't it? Well the answer is there has been labor available.

SUSAN: Um Hmm.

PHIL MARTIN: So I guess I'm not disagreeing at all with you. I'm just sort of saying, you know, I didn't ask the question of the hypothetical. I mean the hypothetical would be: what if they stopped somehow new people from coming in, then what would play out? And that's a hard hypothetical to answer that's why is partly putting in the business of mechanization with a coordinating mechanism I think you could get a push to mechanization. There would be a lot of hypotheticals that you could play out it would depend really on what happens to wage levels. But, you know, to the extent that you're asking - has there been - you know, you're sort of saying the same thing I was finding, which is that so far there haven't been shortages such that we get a spike in wages or that we get people afraid to plant more.

MARK KRIKORIAN: Is that it Susan?

SUSAN: Yeah, I guess what I'm saying is this not, my question, my big question let me see if I can boil it down. Is this is not a case for not doing immigration reform or for not doing the AGjobs bill.

MARK KRIKORIAN: Well

SUSAN: The research isn't supporting that.

MARK KRIKORIAN: Well I don't want to speak for Phil, but the point is like he said the AGjobs and the H2A are not even in the legislation. The point is taking the opportunity of that debate which has created a lot of this, a lot of what seemed to misperceptions about the state of the agricultural labor force. And in a sense sort of using them - using that as an argument against immigration enforcement. The point of this is to take a look at the context in which a lot of this debate has taken place.

SUSAN: Okay.

MARK KRIKORIAN: Ok. Just a second next one. Amy Donor is that correct? Amy? It's a 717 area code. 1707 is the last four digits.

AMY DONOR: Oh yes.

MARK KRIKORIAN: Go ahead.

AMY DONOR: I was just was wondering if I could get a copy of the reporter where we could find something like that?

MARK KRIKORIAN: Well it's online. Most people got a draft sent to them it's online and it will be on our home page at cis.org. There's a circle in the middle of the site and that will take you straight there. It should be put up relatively soon. But we can also - I'll just email you the link after we get off the call.

AMY DONOR: Thank you.

MARK KRIKORIAN: Ok thanks Amy. Next call. Next question. Just a second. It's a 301 area code and the last 4 digits are 5613. Who is that? If your phone number is ends in 5613 from Maryland please speak up now this is your chance to ask a question. Ok. The next person is a 202 area code 4897 are the last four digits.

RYAN HESH: That would be me Ryan Hesh from the employment and train reporter. You talked about this in the context of immigration reform and you also talk a little about mechanization. I'm wondering if you folks could speak on what the report might say to the public work forces system. State and employment agencies and also non-profit service providers that provide the National farm worker, oh I'm not going to get the program name right, but the public farm worker program.

PHIL MARTIN: Well let me just briefly say that the public employment services plays a negligible role in matching farm workers with jobs. There's a sort section in the report that shows, especially for California where we have pretty good data, that union hiring halls in the public employment service, which were important until roughly the early 1980's, have declined and have been replaced by labor contractors. So that half of all the farm worker employment in 2006 for the first time ever was accounted for by labor contractors and other little people. The reason that, that's important is because the incentives of the contractors system leads you to these simultaneous shortages and surpluses. Because the farmer of course doesn't pay while the contractor and the crew are waiting to go to work so the employer has an incentive to request more workers sooner to make sure they're available when he wants work to start. And the contractor of course has the incentive to promise more workers than he or she may have, so that he gets that particular job. And so the - that's why you can easily get a situation in which the farmer says you know I asked for a crew of 30, I got only a crew of 20, there's a shortage of 10. But of course you don't hear as much about the other side which is the crew waiting to go work because they were requested too early. We don't we have in other words a de-centralized job matching system in agriculture not a centralized one. So the public employment service matches well under 1% of all the workers and jobs in course of a year in the year of agriculture. The employment and training programs the national farm workers job programs are roughly 75 to 80 million dollar a year effort to provide workers with training so that they can improve their incomes within agriculture or move out. And they're worthwhile programs but they don't play a terribly big role in job matching in agriculture. In other words they're known as employment and training programs that house workers who want to get training which often then helps them to get non-farm jobs. Sometimes the training helps them get a better job within agriculture often it helps them get a better job in the non-farm sector. So, they were those programs were no designed to be like as it were a substitute public employment service, and they're not playing that role. They're playing much more a role of helping individuals to increase their incomes.

MARK KRIKORIAN: Thank you Phil. This is the last chance if anyone wants to ask a question, to press the star key on the telephone now. The report again is online at cis.org. And for anyone who forgot to ask a question or it didn't work for them, well we have one more question. Just a second. And our operator is going to un-mute your line in just a second. It's a 202 number 6916 are the last four digits. If that's you, you can ask your question now.

JERRY KAMMER: Hello. Mark this is Jerry Kammer. The line is breaking up so I only heard the

MARK KRIKORIAN: Ok well you're on.

JERRY KAMMER: I came in late if this question as already been asked I apologize. And I'll have another one but I wanted to ask Phil Martin if he has responded to the observation of Senator Feinstein that one of the reason she supported that the AGjobs is that she worked with the state to try to identify workers and apparently only one was available in the search that she helped I think facilitate.

PHIL MARTIN: Well, Jerry we just said that a little bit ago that the public employment service plays a negligible role in job matching in agriculture. And that is neither employers seeking workers nor workers seeking jobs tend to use the public employment service. There are many, many reasons, but the probably the main ones have to do with employer dissatisfaction with the rules that have to be followed to do postings of jobs in the public employment service. And the fact that many of the workers are not legally authorized to be in the United States. I mean the public employment service for many complex reasons does not play a very big role. It becomes a question with the public employment stuff is who's responsibility is it to get a workforce. So if I asked for 10 workers at the public employment service and they send me 5 and then I determine that 4 are not qualified then it becomes a question is was is the government's job to provide me with 10 workers that I deemed qualified or is it my job to go out and find them? When you start looking at particular cases of where workers will referred and the fact that some of them came and worked a half a day and weren't seen again. It's a - and you start actually following up discover the story is a bit more complex then what it first sounds. And it always comes back to this fundamental question which is: what's the responsibility of the employer to find what he or she considers a satisfactory work force, versus the responsibility of a - the employer to do that.

JERRY KAMMER: I have another question but if we need to wait our turn in a second round I will certainly wait.

MARK KRIKORIAN: Oh no I think you can go ahead now Jerry.

JERRY KAMMER: I wanted to ask Doctor Martin. How he would judge the damage to the overall California economy of the lost of support industries. Sales of refrigerators systems, trucking, sales of boxes that sort of thing. If the AG industry were lost what would be hit to the California economy be beyond the growers and the workers?

PHIL MARTIN: well you know the California economy is about 1.6 trillion dollars and farm says are about 33 billion dollars so that's about 2% or so, but of course farmers do turn around and spend much of what they receive in revenue for a variety of services. Everything from seeds to credit to everything else. But you know in a big economy in a economy as big as California's if its growing even 2% a year then that is equivalent to the total farm sales of the state. And if you double that, then your up to the equivalent of a 4% hit. So clearly, if agriculture were to disappear that would be a hit to the California economy. I guess, I think maybe the way to maybe think about this is, not ask is agricultural going to disappear but the question is will it continue growing at the rate that's its been growing, because it has been expanding. And if it does grow, suppose wages were to go up and one were to get more mechanized, then you would actually think that the multiplier effects of the spending on machines and all sorts of other things might actually have a bigger impact on California or you know than the current way at which its expanding. Because you would be presumably spending money to buy harvesters that are involved, robotics and electronics and all that sort of thing. So the idea of zero one is probably not realistic what's more realistic is the kinds of changes that would be brought about with rising farm wages.

MARK KRIKORIAN: Okay. Thank You, Phil. We'll wrap it up there anyone who for whatever reason wasn't able to get through for the questions or just think of something later give us a call or press person is Bryan Griffith and our phone number is 202-466-8185. And we can either pass it on or hook you up with Professor Martin or something like that. So I appreciate everyone bearing with us, with the glitches this is the first time we've done this and hopefully we'll be doing it some more in the future. Thank you, Phil.

PHIL MARTIN: Thank You

MARK KRIKORIAN: Thanks for everyone who called in. Bye.