NFAPP's Newsletter December 1997/January 1998

Featured Articles :

" Shortage? There is no Shortage, Just not Enough Workers. ", by Timothy J. Richards, Ph.D.
Topic : Agricultural Labor

"Market Watch.....Baseline 1998", by Richard Adu-Asamoah, Ph.D.
Topic : The 10 year NFAPP Trend Predictions of the Fruit and Vegetable Markets

" SPECIAL ANNOUNCEMENT : NEW NFAPP PROGRAM COORDINATOR - AMY RIDINGS"

In a report released in December of last year, the General Accounting Office (GAO) claims that there is, in fact, no nationwide shortage of agricultural labor. In fact, they cite Department of Labor experts claiming that the opposite is true -- that there is a surplus of agricultural labor. Of course, the implication of this conclusion is that the current guestworker provision is working fine, requiring only minor modifications to reduce paperwork and bureaucratic burden to, presumably, produce an ideal solution to growers' labor concerns. These concerns, the report argues, are localized and likely insignificant amidst the vast numbers of undocumented, and uncounted workers currently in the U.S.

While the report is carefully done and meticulously documented, their conclusions rest on one key, and flawed, assumption. Namely, the authors assume that labor market statistics are believable and, less credibly, accurately reflect conditions in agricultural labor markets. For example, a critical plank in their argument consists of the fact that 19 of the 20 large agricultural counties they survey had unemployment rates greater than the national average from 1994-1996. While these numbers are likely correct, it is quite possible that those unemployed do not regard themselves as agricultural workers, so, in fact, the agricultural unemployment rate is far lower than what the GAO uses to support their argument. Indeed, when low non-agricultural unemployment rates and unprecedented opportunities to move into relatively high-paying semi-skilled manufacturing or construction jobs lure workers from the fields and orchards, these workers no longer consider themselves farm workers, so are reluctant to move back when non-farm opportunities dry up.

Although this line of reasoning seems to imply that these workers are somehow stubborn and irrational, they are instead being entirely rational and following basic economic principles. If an agricultural worker sees an opportunity to move into the non-farm sector, he or she must often invest a considerable amount of time, effort, capital and anxiety in making the move. The expected wage must, therefore, be well above what they are currently earning to warrant this investment. However, once the move is made, the worker is similarly reluctant to abandon the commitment made to become established in the other sector. In fact, even if non-farm wages drop below those that caused them to move off the farm in the first place, workers will not leave if they hold out hope that non-farm wages will rise once again. Stock market or commodity investors will recognize this logic as implying that workers have an option value -- remaining in the current occupation has a value based on the probability that wages will once again rise sufficiently to make their sunk investment worthwhile. As long as wages are variable and remain at least somewhat above agricultural wages, they will remain in the non-farm sector. This value-of-waiting gives rise to hysteresis -- or the tendency for a phenomenon to persist despite the fact that its original cause is removed.

The result of this hysteresis is clear. High unemployment rates can be entirely consistent with a severe shortage of agricultural labor, especially when the non-agricultural workers have enjoyed a recent period of prosperity. In fact, using data on farm and non-farm wages from Washington State, a recent NFAPP study shows that farm labor markets were three times as likely to be in shortage than in surplus over the past four years. What is the solution to this problem?

The solution is not necessarily more workers, because there are clearly enough workers in many farming regions. Rather, either non-farm wages must drop sufficiently to fall below the low "trigger" levels caused by the option value to waiting, or the uncertainty of wages in either sector must fall. Instead of a minimum wage in the farm sector, as is commonly argued, the solution could lie in a ceiling on non-farm wages. If workers see little chance of returning to the wages they earned upon entering their non-farm jobs, they will be much more likely to return to what they had before. This solution does not require the government to somehow regulate a wage ceiling in the non-farm sector.

Rather, as conditions in sectors such as construction and manufacturing become increasingly competitive due to imports of cheap foreign products, or pressures to reduce margins on construction projects, this ceiling will appear on its own. Once again, open borders in a global market provides all the regulation the economy needs.

This year's Food and Agricultural Policy Research Institute (FAPRI) baseline conference was held in Kansas City, MO from January 8 through January 9. As in previous years NFAPP staff were present to share findings and projections with those attending. Mr. Vernon Crowder of Bank of America reviewed and offered a response to the NFAPP presentation. Both the NFAPP presentation and Mr. Crowder's response provided a framework for insightful and timely industry discussions. Due to the increased number of fruit and vegetable commodities that NFAPP researchers have worked on to date, this year's baseline presentation was designed to share information and interesting trends observed during the baseline process. Specifically, NFAPP highlighted expected trends in fruit and vegetable cash receipts, and the specific fruits and vegetables contributing to these trends, and why. Other interesting observations discussed at the conference related to trends in production, consumption, grower prices and trade. NFAPP export projections reflected the current financial problems in some importing countries in Asia, and assumptions of a slow economic recovery within Asia.