Can Technology Compensate for a Labor Shortage? Effects of 287(g) Immigration Policies on the U.S. Dairy Industry

We leverage spatial and temporal variation in the implementation of county‐level 287(g) immigration enforcement policies as a quasi‐experiment to measure the effects of an inward shift in the local immigrant labor supply on U.S. dairy operations. Our findings show that 287(g) policies cause production and labor expenditures per farm to decrease and labor efficiency to increase. The primary dairy operator is more likely to have off‐farm income, and dairies are more likely to use select labor‐saving technologies after 287(g) is implemented. Nevertheless, the number of dairies in operation, total milk production, and average dairy size in the county decline. Our findings indicate that the dairy industry became more labor efficient and technologically advanced as a result of the 287(g) program. However, total production declined. We conclude that technological gains in the dairy industry were insufficient to entirely offset the negative shock to production resulting from an inward shift in labor supply, at least in the short run. These findings are of importance for labor‐intensive industries that could potentially experience an adverse labor supply shock.