Help Wanted: Wage Inflation and Worker Scarcity

By Tanner Ehmke and Dan Kowalski

August 28, 2018

Wages are higher and jobs are now more widely available than ever in several industries that compete for the same workers as the agricultural sector. To keep up with sectors like construction, food service, and manufacturing, agricultural wages are increasing at a faster rate than most other industries.

Labor accounts for a significant share of overall operational costs for many types of farms, particularly specialty crop and dairy operations. In 2016, labor costs on all farms made up about 10 percent of gross income, while that share represented closer to 27 percent for specialty crops. Hired workers on U.S. farms are primarily from Mexico. A number of factors including demographic shifts, competing opportunities for agricultural labor within Mexico, and increased border control are now combining to tighten that labor supply and drive up costs. Higher costs associated with producing many of these labor-intensive commodities are forcing producers to find new ways to adapt, including technology and automation.

Key Points

  • In a tight U.S. labor market, agriculture is struggling disproportionately compared with other industries to compete for scarce labor.
  • With the U.S. economy growing and manual laborers chasing higher wages that are offered in more wage-competitive industries like transportation, construction, hospitality and mining, employers in agricultural industries are being forced to increase wages at a faster rate to compete.
  • The quickening pace of wage inflation in agriculture puts significant stress on profitability at a time of depressed commodity prices.
  • As the pool of migrant agricultural laborers from Mexico continues to shrink due to ongoing economic, demographic and policy shifts, agricultural employers in the U.S. face a future of further tightening in the labor market.
  • To adapt to a worsening labor climate, agricultural employers in the years ahead will increasingly be pressured to raise wages and worker benefits, seek out workers via the H-2A visa program, turn to other areas like Central America’s Northern Triangle or East Asia for workers, adopt new technologies in robotics and automation, or ultimately move operations abroad to regions where labor is more accessible. 

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