Farm Labor Scarcity and its Uneven Impacts on U.S. Crop Producers

This paper is the first to evaluate the nationwide impacts of farm labor scarcity on U.S. crop producers. We focus on the period between 2002 and 2017 and disentangle the effects of labor scarcity from other market forces such as rising demand for agricultural commodities, factor-biased technological change, and changes in the supply of other inputs. To accomplish this, we leverage insights from a stylized theoretical framework, that shows labor market outcomes are determined by the interaction of market forces with structural parameters like factor-specific productivity changes, factor substitutability and endogenous relative price changes. We implement a two-step empirical strategy. First, we use a novel constrained optimization approach to simultaneously estimate changes in input-biased factor productivity, labor substitutability and price elasticity of labor supply for major crop-producing Farm Resource Regions. Second, with these estimates in hand, we use a spatially explicit partial equilibrium model of the crop sector, to replicate observed labor market outcomes, and estimate their responsiveness to a 1% shock in farm labor supply across widely differing production systems, between 2002 and 2017. Our estimates of regional changes in factor-biased productivity underscore the differences in capacity to adjust to labor shortages across production systems. We estimate that a 1% annual decline in farm labor supply can increase hiring costs by 7.4% for specialty crop growers and 5.9% for field crop producers over the course of a decade. These can be further aggravated if trade policies increase demand from domestic producers and immigration policy further accentuates the shortage of farm workers. Addressing labor scarcity will be key to ensuring the long-term sustainability and resilience of U.S. agriculture