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 between 2002 and 2017, by disentangling its effects 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 between input-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 and labor substitutability for nine 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 changes in farm labor supply across widely differing production systems, between 2002 and 2017. Our estimates of regional changes in factor-biased productivity and labor substitutability underscore the difference 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 11.1% for specialty crop growers and 6.1% for field crop producers over 10 years. These can be further aggravated if trade policies increase demand from domestic producers and immigration policy exaggerates the shock to farm workers. Addressing labor scarcity will be key to ensuring the long-term sustainability and resilience of U.S. agriculture.