Tight Labor Market Has Farmers Looking Abroad for Help
The Growing Importance of Foreign Labor
A robust labor market remains a bright spot among U.S. economic indicators. The U.S. unemployment rate remained at 3.5% in March 2023, nearly the lowest level since the 1960s, and there are still more jobs to fill. As of January, there were more job openings than available workers. One reason behind the tight labor market has been the disappearance of workers from the workforce: There are nearly 3 million fewer workers in the workforce today compared to early-2020. Numerous factors are behind the decline in labor force participation, including lack of childcare and inadequate wages to entice workers back following the COVID-19 pandemic. Still, the combined result is a limited supply of available workers for companies to hire.
Tight labor market conditions affecting the broader U.S. economy are incentivizing U.S. agricultural companies to look abroad for workers. The H-2A temporary visa program was created in 1986 and has grown into a vital resource that helps U.S. farmers meet labor requirements. U.S. companies that face labor shortages among domestic workers can use the H-2A program to hire agricultural workers from abroad. These workers are eligible to work in the U.S. for no more than one year and are generally scheduled during peak planting and harvesting periods for labor-intensive crops. As of last year, approximately 8% of U.S. agriculture jobs were filled by H-2A employees.
Applications to hire H-2A workers have spiked in response to the tight labor market. The H-2A program has grown consistently since its inception, tripling in size over the last decade. Application volumes grew even faster last year as employers struggled to staff positions with domestic workers. Using preliminary data, we estimate the number of H-2A workers authorized in 2022 surpassed 378,000, 18% more than in 2021. The number of H-2A workers will likely continue to grow in future years, especially if the broader labor market remains tight. The majority of H-2A applications originate for jobs in six states. California and Florida together account for over 25% of H-2A jobs. Unsurprisingly, there exists a strong geographic overlap between H-2A applications and the states in which labor-intensive commodities are grown. For example, planting, pruning, and harvesting can require significant labor to produce fruits, vegetables, and some permanent plantings. California, Florida, Georgia, and Washington all produce significant volumes of these types of crops. In other states, H-2A jobs vary widely from nursery workers and foresters to equipment mechanics and agricultural engineers. One common theme, though, is all of these jobs have faced differing levels of labor shortages over the past year.
While the H-2A program has helped alleviate the farm labor shortage in the U.S., the program can also introduce financial uncertainty to employers. Notably, hiring H-2A employees requires strict compliance with minimum wage requirements. The U.S. Department of Labor annually calculates the Adverse Effect Wage Rate (AEWR) as the minimum wage allowed to be paid to workers in the H-2A program. The AEWR is calculated for each state using USDA survey data but tends to be higher than state and federal minimum wages. As such, over 96% of applications listed the corresponding AEWR as the hourly wage rate on applications in 2022.
Employers generally rely on H-2A employees for labor-intensive jobs and are therefore exposed to the financial burden of increases in AEWR. The rates vary across states, with California’s AEWR at $17.51 per hour, while Georgia, Alabama, and South Carolina face an AEWR of $11.99 per hour. Acknowledging the variance, the average hourly wage offered on H-2A visa applications rose to $14.68 in 2022, a 7% increase from 2021. Looking ahead, wages are likely to increase further in 2023. Updated AEWR rates suggest the average hourly wage on 2023 H-2A visa applications will rise 8% to $15.88.
Despite the increasing wage rates, the H-2A program provides a vital and unique outlet for farm labor shortages. U.S. farmers and ranchers have faced rising prices for many other input costs over the last year: elevated prices for seed, fertilizer, and fuel have all weighed on profitability. Given this environment, further increases to H-2A wage requirements are a tough pill to swallow. Still, the H-2A program positions the agricultural sector better to weather a period of low unemployment and rising wages. Other industries have similar visa programs, but they are limited by a U.S. government-imposed cap that can cause significant delays in hiring. The importance of the H-2A program to farmers and ranchers is likely to grow, especially if labor market conditions remain tight.
