Estimating Farm Labor Elasticities To Analyze The Effects Of Immigration Reform

A simultaneous equation model was utilized to help measure the impact of the Immigration Reform and Control Act (IRCA) of 1986 on the U.S. farm labor market. Data from 1948 to 1988 were used in fitting the model to estimate the responsiveness of the farm labor market to changes in economic factors such as farm prices, wages, income, and farm size. Farm labor supply and demand elasticities were derived from two-stage least squares estimates. Results found an elastic (-1.44) relationship between the demand for hired labor and changes in the real wage rate. This means a 10-percent increase in the real wage results in a 14.4-percent decline in the number of hired workers demanded. If the labor supply is restricted by the IRCA, the real wage rate is not expected to rise significantly because farm employers may switch to labor-saving technology or move to less labor-intensive crops to avoid paying higher wages. Furthermore, major labor shortages are not expected in the near future because it will take time for farmworkers, particularly aliens legalized under the program, to leave agriculture to take advantage of opportunities in the nonfarm sector.