Friday, October 26, 2007

Farmers mechanizing in face of cheap labor uncertainty

Morning Edition's Ted Robbins reports on farmers who are switching to crops that are less labor intensive:
After thirty-seven years, Ed Curry is not planting green chili here, the kind used for chili reinos, because corn can be harvested by machine. Green chili cannot.
The Western Growers Association, representing thousands of southwestern farmers, claims that a labor shortage caused by tightening immigration enforcement (and the more important effects it has on potential illegal immigrants coming north and those already here in their decision of whether or not to remain) is forcing decisions like those Curry is making.

In reality, there cannot be a labor shortage for unskilled work in a market economy. The shortage is caused by low wages. Curry is having trouble getting his chili picked for $7 an hour without the importation of foreign labor. As he raises the wage rate (UC Davis professor Phil Martin points out in the same story that this has not happened, nor has there been an appreciable overall decline in US fruit and vegetable production), the shortage will dissipate. At some wage level, there will be a large labor surplus.

Curry understandably doesn't want to pay more than he has to, but most of the American public doesn't want to subsidize the picking of his chilis or have to shoulder the externalities his labor brings into the US.

At seven dollars an hour, his laborers are making $14,000 on a 2,000 hour workyear. Low-skilled households, with an average income of $20,500, resulted in an average net fiscal deficit of more than $22,000 a year. Half of illegal immigrant households (and 25% of legal immigrants) residing in the US are low-skilled, compared to just 9% of natives.

That average deficit is actually accentuated by the fact that many illegal laborers pay no income taxes at all (a national consumption tax in place of the federal income tax would frustrate this). The cheap labor Curry wants is paid for in large part through the transfer of wealth from natives to his laborers.

Parenthetically, libertarians will argue that the problem of a net deficit is due to the existence of so many social programs that lead to more than $32,000 in government revenues being spent each year on low-income families. As Milton Friedman said, "It's just obvious you can't have free immigration and a welfare state." So axe the welfare state. Problem solved.

Except that the people on the receiving end of the current formula don't want the welfare state axed. And open immigration is rapidly increasing their ranks.

The philosophically pure idea of keeping what you earn and being entitled to nothing that you don't is attractive to high-IQ libertarians with annual incomes in the upper five figures and beyond, who are currently paying more into the system than they are getting out of it. But most of their fellow residents do not make that much, and enjoy more in benefits than they are paying in. The vast majority of immigrants under a free migration system (and the the current one that approaches it) will belong to the latter group. They will favor more redistributive taxation, universal healthcare, subsidized social services, and the like.

A less ample supply of cheap labor is causing a small number of farmers to move operations to Mexico. Most are moving toward greater mechanization. Martin comments:
In the long-run, what makes American agriculture competitive internationally is that we have very high productivity, and that usually means substituting machines for people.
The idea of the US competing internationally on the cost of labor is absurd. If a farmer's focus is on obtaining the cheapest labor possible, he should consider moving his operations to Mexico. Of course, there are five billion people living in places less affluent than Mexico, so he has plenty of other options.

In the face of more expensive labor, the majority of agricultural operations that stay stateside will continue to turn toward technological innovation to improve efficiencies and increase productivity. This is a surer long-term strategy for outdoing farmers in Mexico than trying to compete on labor costs with a country where the minimum wage is one-tenth of what it is in the US will ever be.

4 comments:

savage said...

In the spirit of the children's games, that is the Libertarian's great tragedy - his tenets destroy the very utopia he hopes to create. This is just as tolerance as a value system leads to its own destruction, if it cannot defend against intolerance.

It must be repeated that if peasant labor were a crucial ingredient to economic strength, the third-world would be rich, and, of course the corollary - the first-world would be poor.

Fat Knowledge said...

Those who believe immigration controls of any kind are necessary do not believe in free markets, quite simply. (Sorry, couldn't resist. :))

Hey, how much do you figure that building the wall and other enforcements of immigration are going to cost? Just curious if it is going to cost more to try and keep the Mexicans out than it is to let them come in.

Audacious Epigone said...

Savage,

Right. If unskilled labor is so vital, why are we filching it from Mexico? Surely that country needs it more than we do!

FK,

Heh, I'm not a believer in unadultered free markets, as I'm a human biodiversity realist. Similarly, I see a need for affirmative action policies to approach a racial/ethnic/gender equilibrium, if that is what is desired, for the same reasons (although I'd rather focus on establishing a mostly homogenuous society to avoid the need for all of that in the first place).

The highest estimates for the Israeli security barrier see it costing just over $4 million a mile, which would translate to about $9 billion across the full length of the US-Mexico border. I'm not sure we'd need the same fortitude in our panoply though, since we're not talking about keeping out armed militias that are taking pot-shots at us (at least not in the same frequency as in Palestine). It's as expensive as one month in Iraq.

As for the enforcement, I'm not sure. ICE, which doesn't want to crack down, put out an incredulous estimate of $8,000 per person deported. But it made the ahistorical, baseless assumption that 12 million people would have to be deported. For every one deported, seven or eight leave.

al fin said...

I expect more agriculture in the US to move to the "high rise" aeroponics , mechanized model.

The capital costs are high, but the benefits from reduced transportation costs to urban markets are becoming more significant every year.

As for free markets and immigration--that is comparing apples and oranges. Open borders only work when neighboring countries are relatively homogenous in terms of population cultures and aptitudes.

Clearly 1st world borders with 3rd world countries cannot allow "open borders" if the 1st world country has a welfare democracy and birthright citizenship, as the US has.