A DYNAMIC GENERAL EQUILIBRIUM ANALYSIS OF IMMIGRATION POLICIES AND AGRICULTURAL LABOR MARKETS

• Sponsoring Institution: National Institute of Food and Agriculture
• Project Status: COMPLETE
• Funding Source: AFRI COMPETITIVE GRANT
• Reporting Frequency: Annual
• Accession No.: 1005418
• Grant No.: 2015-67023-22962
• Cumulative Award Amt.: $399,867.00
• Proposal No.: 2014-05562
• Project Start Date: Jan 15, 2015
• Project End Date: Jan 14, 2019
• Grant Year: 2015
• Program Code: [A1641]- Agriculture Economics and Rural Communities: Markets and Trade

Recipient Organization
UNIVERSITY OF ARKANSAS
(N/A)
FAYETTEVILLE,AR 72703

Performing Department
Agricultural Economics

Non Technical Summary
Of the 37 million immigrants in the United States, about 11.5 million are naturalized citizens, 14.5 million are legal immigrants, and 11 million are unauthorized entries. Consequently, immigration has become an important issue in the United States because of social consequences, political ramifications, and economic implications. The problem of illegal immigration rose to prominence in the early 1980s. As a result, the U.S. government passed the Immigration Reform and Control Act in 1986, which used amnesty to try to eliminate the stock of undocumented workers, establish border and domestic enforcements, and introduced a guest-worker program (H2-A). However, amnesty not only failed to eliminate the stock of illegal immigrants but also created a future expectation of amnesty. Furthermore, the porous border control and lax domestic enforcement did not stem the flow and stock of illegal immigrants. And, the H2-A guest-worker program, which allows foreign workers to come to the United States for temporary or seasonal work, was woefully inadequate to meet the burgeoning agricultural labor demand. Labor scarcity affects high-value labor-intensive agricultural production (such as vegetables, fruits, meat, nursery products, etc.). Yet, labor shortages are a persistent problem, especially during peak farm operations such as harvesting. In some years, as much as 20% of agricultural products were not harvested nationwide, and losses were estimated to be even higher in western states. U.S. citizens and legal immigrants often do not want these jobs due to the hard, physically demanding nature of the work. Farmers have therefore turned for years to unauthorized immigrant laborers, mostly from Mexico. Indeed, recently several proposals have been introduced in the U.S. Congress to address illegal immigration. These proposals include tightened border surveillance, stricter domestic enforcement, deportation of unlawful immigrants, pathway to citizenship, and guest-worker programs. These reforms have important implications for farm labor supply, farm wages, agricultural production, and rural economic conditions.The project will develop a two-country (United States and Mexico), multi-sector (agriculture, manufacturing, construction, and services) model and empirically implement it to examine the economy-wide impacts of proposed legislations on immigrant (legal and unauthorized) and domestic workers. We will use parameters collected from the literature and data from key government agencies to calibrate the model. After the model is calibrated, we will solve the model numerically for the endogenous variables such as prices, legal and illegal wage rates, supply and demand of agricultural and non-agricultural goods, volume of trade, investment, bilateral capital flow, remittances, illegal labor flow, input use, employment of domestic, undocumented, guest workers, and welfare. The results of this project will comprehensively and scientifically analyze the economic and social consequences of proposed immigration legislation.

Animal Health Component

33%

Research Effort Categories

Basic

34%

Applied

33%

Developmental

33%

Classification

Knowledge Area (KA)	Subject of Investigation (SOI)	Field of Science (FOS)	Percent
610	6110	3010	50%
606	6120	3010	25%
601	6110	3010	25%

Knowledge Area
601 - Economics of Agricultural Production and Farm Management; 610 - Domestic Policy Analysis; 606 - International Trade and Development;

Subject Of Investigation
6110 - Economy of the United States and sectors thereof; 6120 - International economy and sectors thereof;

Field Of Science
3010 - Economics;

Keywords

farm employment

guest workers

immigration

production

Goals / Objectives
U.S. agriculture, particularly labor-intensive crops, rely heavily on immigrant farm workers. Given the inadequate supply of the current guest-worker program for meeting the farm labor demand, U.S. farmers are facing a labor shortage. Furthermore, worksite and border enforcements and the recent U.S. economic recession have exacerbated farm labor scarcity. The farm labor market is clearly strained. Research is needed to study the effectiveness of the guest-worker program, border and domestic enforcements, proposed immigration reforms, and macroeconomic conditions. The goal is to comprehensively analyze the dynamics of the U.S. farm labor market and the effectiveness of immigration policies at reconciling labor supply and demand. The specific objectives are to: 1) model the economic and social motives of legal and illegal immigrant flow, 2) ascertain the demand for farm laborers in production of various crops, 3) examine the impacts of the expansion of the guest-worker program on agriculture, 4) determine the effects of border and domestic enforcements on illegal immigration and agriculture, 5) investigate the consequence of proposed legislation on legalizing the status of the current immigrants, and 6) draw policy implications and provide recommendations to alleviate farm labor shortages. The project will develop a dynamic two-country, multi-sector, general equilibrium model and empirically implement it to examine the economy-wide impacts of immigrant population. This project addresses the priority area "farm labor markets and immigration and policy," and cover the scope: a) the design, evaluation, and impact of immigration policies and b) novel approaches to measuring impacts and outcomes for effective research evaluation.

Project Methods
Framework To address the immigration issues identified above, we develop a model of U.S. legalized and unauthorized workers producing agricultural and manufacturing goods. Figure 1 depicts the interrelationships between the U.S. and Mexican sectors, labor markets, and policy variables. The policy variables appear in ovals, labor market variables in rectangular boxes, and commodity markets variables in hexagons. Mexican laborers decide to work in Mexico or illegally immigrate to the United States. If they decide to emigrate, they could be apprehended at the border and sent back to Mexico, where these laborers can return to the Mexican labor market or attempt to reenter the United States. The probability of getting apprehended is influenced by the U.S. government's resource allocation to border enforcement. Immigrants that successfully enter the U.S. labor market could also be caught by worksite raids and sent back to Mexico, where the labor cycle restarts. The probability of apprehension depends on the U.S. government's budget allocation for domestic enforcements. The green arrow indicates illegal entry to the United States, the yellow arrows show the apprehension and return to Mexico, and the blue arrow reflects deportation of unauthorized immigrants.Labor is used in the production of farm and nonfarm commodities. Illegal laborers combined with guest workers and U.S. domestic laborers form the total farm workforce. U.S. domestic workers and unauthorized workers can also be employed in the nonfarm sector. In both countries, macroeconomic conditions influence the labor and commodity markets. For example, if the U.S. economy is expanding, then more labor is drawn from Mexico. However, if the U.S. economy is contracting, fewer incentives exist for laborers to illegally enter the United States and some of the undocumented workers may return to Mexico, as experienced during the recent recession. If the Mexican economy is growing, then fewer workers tend to immigrate; however, if the Mexican economy is slowing, more laborers are inclined to illegally immigrate.Empirical Analysis Successful implementation of the dynamic general equilibrium model involves three steps: (1) data collection, (2) calibration, and (3) simulation analyses.Means of AnalysisThe dynamic general equilibrium model will be implemented using Matlab software, Mathematica, Microsoft Excel, and Corral graphic software.

Progress 01/15/15 to 01/14/19

Outputs
Target Audience:Agricultural economists, policy makers, commodity producers, farm labor groups, and non-government agencies. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided?One student received an MS degree in applied economics. One PhD will receive a PhD degree in applied economics. One post-doctoral research associate has gained experience and will likely publish a paper. How have the results been disseminated to communities of interest?The results have been disseminated through publications, presentations, thesis and dissertations. What do you plan to do during the next reporting period to accomplish the goals? Nothing Reported

Impacts
What was accomplished under these goals? 1) model the economic and social motives of legal and illegal immigrant flow, The publication below model the economic and social motives of legal and illegal immigrant flow Stephen Devadoss and Jeff Luckstead. U.S. Immigration Policies and Dynamics of Cross-Border Workforce in Agriculture. The World Economy, 41(9):2389-2413, 2018. Economic Analysis of the U.S. Agricultural Labor Markets: Evidence from the National Agricultural Workers Survey An Li and Jeffrey J. Reimer Unpublished working paper, Department of Applied Economics, Oregon State University Immigration and Minimum Wage Policy: General Equilibrium Analysis for Oregon Jeffrey J. Reimer and Thomas S. Palley Unpublished working paper, Department of Applied Economics, Oregon State University A General Equilibrium Analysis of Stricter Immigration Policies on US and Mexican Economies Xin Zhao, Stephen Devadoss, and Jeff Luckstead Revise and resubmit at Journal of Agricultural and Applied Economics. 2) ascertain the demand for farm laborers in production of various crops, The following atricles deal with estimating demand for fam labor in agricultural crops: Economic Analysis of the U.S. Agricultural Labor Markets: Evidence from the National Agricultural Workers Survey An Li and Jeffrey J. Reimer Unpublished working paper, Department of Applied Economics, Oregon State University Immigration and Minimum Wage Policy: General Equilibrium Analysis for Oregon Jeffrey J. Reimer and Thomas S. Palley Unpublished working paper, Department of Applied Economics, Oregon State University 3) examine the impacts of the expansion of the guest-worker program on agriculture, The following publication explicitly models and examines theimpacts of the expansion of the guest-worker program on agriculture, Stephen Devadoss and Jeff Luckstead. U.S. Immigration Policies and Dynamics of Cross-Border Workforce in Agriculture. The World Economy, 41(9):2389-2413, 2018. 4) determine the effects of border and domestic enforcements on illegal immigration and agriculture, The following articles, presentations, and popular presss articlesdetermine the effects of border and domestic enforcements on illegal immigration and agriculture, Stephen Devadoss and Jeff Luckstead. U.S. Immigration Policies and Dynamics of Cross-Border Workforce in Agriculture. The World Economy, 41(9):2389-2413, 2018. A General Equilibrium Analysis of Stricter Immigration Policies on US and Mexican Economies Xin Zhao, Stephen Devadoss, and Jeff Luckstead Revise and resubmit at Journal of Agricultural and Applied Economics. Stephen Devadoss and Jeff Luckstead "Immigration, NAFTA Revision, and U.S.-Mexican Commodity Trade" paper presented at the Western Economic Association International, 14th International Conference in Newcastle, Australia, 2018. Devadoss, S., and J. Luckstead, "U.S. Immigration Policies," Paper presented at the Dept. of Agricultural Economics, New Mexico State University, March, 2017. Ag Labor Gap May Be Unavoidable As Availability and Automation Draw Closer Together: https://southeastproduceweekly.com/2017/08/03/trump-immigration-agriculture-friend-foe/ THE DATA ON IMMIGRATION - "BUILDING A WALL WON'T HELP FARMERS," ACCORDING TO TWO RESEARCHERS. Successful Farming Magazine, 1716 Locust Street/LS257, Des Moines, IA 50309-3023 5) investigate the consequence of proposed legislation on legalizing the status of the current immigrants, and The following presentation deal withthe consequence of proposed legislation on legalizing the status of the current immigrants Devadoss, S., and J. Luckstead, "U.S. Immigration Policies," Paper presented at the Dept. of Agricultural Economics, New Mexico State University, March, 2017. 6) draw policy implications and provide recommendations to alleviate farm labor shortages. All articles, publication, popular press articles, and presentations from the work on this grant make explicit policy recommendation andprovide recommendations to alleviate farm labor shortages.

Publications

• Type: Journal Articles Status: Published Year Published: 2018 Citation: Stephen Devadoss and Jeff Luckstead. U.S. Immigration Policies and Dynamics of Cross-Border Workforce in Agriculture. The World Economy, 41(9):2389-2413, 2018.
• Type: Journal Articles Status: Other Year Published: 2018 Citation: Economic Analysis of the U.S. Agricultural Labor Markets: Evidence from the National Agricultural Workers Survey An Li and Jeffrey J. Reimer Unpublished working paper, Department of Applied Economics, Oregon State University
• Type: Journal Articles Status: Other Year Published: 2018 Citation: Immigration and Minimum Wage Policy: General Equilibrium Analysis for Oregon Jeffrey J. Reimer and Thomas S. Palley Unpublished working paper, Department of Applied Economics, Oregon State University
• Type: Journal Articles Status: Under Review Year Published: 2018 Citation: A General Equilibrium Analysis of Stricter Immigration Policies on US and Mexican Economies Xin Zhao, Stephen Devadoss, and Jeff Luckstead Revise and resubmit at Journal of Agricultural and Applied Economics.
• Type: Journal Articles Status: Under Review Year Published: 2018 Citation: Importance of H-2A Guestworkers in Agriculture Jeff Luckstead and Stephen Devadoss Forthcoming in Choices
• Type: Conference Papers and Presentations Status: Accepted Year Published: 2018 Citation: Stephen Devadoss and Jeff Luckstead "Immigration, NAFTA Revision, and U.S.-Mexican Commodity Trade" paper presented at the Western Economic Association International, 14th International Conference in Newcastle, Australia, 2018.
• Type: Other Status: Other Year Published: 2017 Citation: Devadoss, S., and J. Luckstead, U.S. Immigration Policies, Paper presented at the Dept. of Agricultural Economics, New Mexico State University, March, 2017.

Progress 01/15/17 to 01/14/18

Outputs
Target Audience:Agricultural economists, policy makers, commodity producers, farm labor groups, and non-government agencies. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided?Two graduate students worked on this project. One of the is an M.S. student and completed his thesis based on the resreach for this project. A second student is a PhD student is currently working on a project related to this project. How have the results been disseminated to communities of interest?We presented papers at the professional meetings. Several news outlets interviewed us and published the results of our work. What do you plan to do during the next reporting period to accomplish the goals?We are working on research related to stricter immigration policies and the effects on trade.

Impacts
What was accomplished under these goals? Two new studies were undertaken this year. The first study is "Immigration and Minimum Wage Policy: General Equilibrium Analysis for Oregon." This study develops a computable general equilibrium model of the Oregon state economy using detailed data for that state regarding minimum wage labor markets. The model is used to address what will happen across the state economy (and to workers and households) under two scenarios: tighter immigration laws and a higher minimum wage. The second study is "Econometric Analysis of U.S. Agricultural Labor Markets." This study involves econometric estimation of supply and demand relationships in U.S.-wide agricultural labor markets. A basic theoretical model has been developed and it is implemented using the econometric model. This model is estimated using NAWS survey data and applying a variety of appropriate econometric estimators. A series of preliminary econometric results have been found, e.g., on the demand side, wages are positively correlated with working hours, and an increase of U.S.-Mexico border linewatch by a 1000 hours are associated with a small increase in hourly wage rate. On the supply side, wages have a negative relationship with working hours. Unauthorized workers receive an average hourly wage that is $0.29 lower than documented workers, ceteris paribus. This wage gap is around 4.2%. The hourly wage rate of females is significantly lower than that of males, and wages increase with education and tenure, controlling for tasks.

Publications

Progress 01/15/16 to 01/14/17

Outputs
Target Audience:Agricultural economists, policy makers, commodity producers, farm labor groups, and non-government agencies. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided?One graduate student is working on this project. How have the results been disseminated to communities of interest?We presented a paper and a progress report at a professional conference. What do you plan to do during the next reporting period to accomplish the goals?We are developing a two-country (US and Mexico) and two-sector (agricultural and nonagricultural) immigration model that incorporates population growth and human capital accumulation through education. Education is important for two reasons: 1) it impacts the rate at which workers endogenously choose to work in the agricultural sector or nonagricultural sector and 2) there is a clear negative relationship between education achievement and population growth which in the long-run impacts the overall labor supply. Consequently, this study focuses on long-term problems related to dwindling labor supply for agriculture for both the United States and Mexican as higher education results in workers transiting out of agriculture and the growth of the overall agricultural labor supply slows as population growth declines.

Impacts
What was accomplished under these goals? We competed one study and it is under review. The summary of this study is: Given the contentious public debate on immigration, this study develops a dynamic model to study the effects of stricter border control, domestic surveillance, and streamlining the guest-worker program on unauthorized migration from Mexico, employment and production in U.S. labor-intensive and Mexican agriculture, the U.S. legal and illegal wage rates, and the Mexican wage rate. The model incorporates the labor-leisure decision of Mexican workers and the dynamics of the removal and addition of unauthorized migrants to the stock of existing undocumented workers. The findings show that tighter border and domestic controls harm the U.S. labor-intensive agricultural sector by exacerbating the labor-shortage problems. Streamlining the guest-worker program provides a steady supply of farm workers; however, it does not increase the total number of workers because the addition of new guest workers reduces the number of undocumented workers by slightly more than one-to-one. As a result, this program has only a negligible impact on the U.S. wage rates, which is in line with the H-2A policy prescription.

Publications

• Type: Journal Articles Status: Under Review Year Published: 2016 Citation: Stephen Devadoss and Jeff Luckstead U.S. Immigration Policies and Dynamics of the Work Force in Labor-Intensive Agriculture, under review at the American Journal of Agricultural Economics.

Progress 01/15/15 to 01/14/16

Outputs
Target Audience:Agricultural economists, policy makers, commodity producers, manufacturing and retail sectors. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided?The graduate student is learing immigration policies, computable general equilibrium models, and economic analysis of immigrant workers in agriculture. How have the results been disseminated to communities of interest?We hope to present the paper at the professional meetings. What do you plan to do during the next reporting period to accomplish the goals?We aim to complete two studies for this grant.

Impacts
What was accomplished under these goals? The first study is completed and in review. This study examines the substitutability between documented and undocumented workers, documented workers and capital, and undocumented workers and capital in analyzing the need for additional foreign farmer workers for a variety of crop and livestock production. A production function model with three inputs--documented farm workers, illegal immigrant farm workers, and capital--is developed and a translog cost function was derived and estimated to analyze the substitutability among the three inputs. The results show that for labor-intensive crops, such as vegetable and fruit production, illegal immigrant farm workers complement the other two inputs, and consequently these workers do not take jobs away from domestic workers. In contrast, for non-labor intensive crops, the elasticity of substitution, the inputs are positive but small in magnitude. As a result, immigrant farm workers compete with domestic workers but only marginally. For the second study, data related to wage and employment for 100 different sectors and several years have been collected from the Department of Employment. We are presently analyzing these data, and segregating them into hours worked by minimum wage employees (who are most likely to be affected by immigration and certain other policies) and all other employees. We are developing charts and graphs to show the intensity of minimum wage employment in different sectors. The goal is to use these and other data to study how changes in immigration border control and minimum wage policy on labor outcomes in different sectors, within an applied general equilibrium model. For the third study, we developed a model of U.S. legalized and unauthorized workers producing agricultural and manufacturing goods. This model depicts the interrelationships between the U.S. and Mexican sectors, labor markets, and policy variables. Mexican laborers either work in Mexico or illegally immigrate to the United States. If they decide to emigrate, they could be apprehended at the border and sent back to Mexico, where these laborers can return to the Mexican labor market or attempt to reenter the United States. The probability of getting apprehended is influenced by the U.S. government's resource allocation to border enforcement. Immigrants that successfully enter the U.S. labor market could also be caught by worksite raids and sent back to Mexico, where the labor cycle restarts. The probability of apprehension depends on the U.S. government's budget allocation for domestic enforcements. We are currently in the process of collecting data to conduce the empirical analysis. For the last study, we are working on developing the theoretical model.

Publications

• Type: Journal Articles Status: Under Review Year Published: 2016 Citation: Edward Osei, Syed Jafri, and Stephen Devadoss "Mexican Migrant Labor in Southwestern U.S. Agriculture: Complementary or Substitutionary?" under review at Journal of Agricultural and Applied Economics.