Food prices in the United States are rising at the fastest rate in decades, and many policymakers want to respond. Increasing the number of legal foreign workers available to farms would increase food production and lower prices for consumers. The H‑2A program that allows farmers to hire foreign workers has no cap. Instead, Department of Labor (DOL) H‑2A minimum wage rules limit the number of workers hired and so reduce food production, which increases food inflation.

The Farm Workforce Modernization Act (H.R. 1603)—which passed the House of Representatives last year and is waiting for Senate action—reforms the H‑2A minimum wage rules to allow more foreign workers to harvest more crops on U.S. farms. This would be particularly important for crops with the highest cost of labor, such as fruits and vegetables, which account for about 60 percent of all H‑2A workers. This legislation could have some significant effects on this important problem:

  • Food prices have increased 11.4 percent over the last year—the fastest rate in over 4 decades.
  • H‑2A labor costs are increasing much faster than labor costs elsewhere.
  • Agricultural unemployment reached 3.1 percent this summer.
  • Low unemployment has driven 20-percent increases in the H‑2A program in 2021 and 2022.
  • Increasing H‑2A costs alongside greater participation means that H‑2A wages are on pace to double by 2024 and make up over 29 percent of all farm labor costs.
  • The Farm Workforce Modernization Act would reduce labor costs for H‑2A farms by about $1 billion in the first year and $1.8 billion in the second, which would result in many more workers being hired, more productivity, and lower prices for consumers.

Food Inflation Is Rising Alongside Increases in H‑2A Costs

Figure 1 graphs the scope of the food inflation problem. In four decades, the year-over-year increase in the Consumer Price Index for food has never gone far beyond 6 percent. In August 2022, it reached an astounding 11.4 percent—four times the average from 1982 to 2020 and nearly double the peak during that period. Unfortunately, it is showing no signs of letting up. Every possible effort must be made to reduce food costs because it eats up 10 percent of Americans’ disposable income, and it was 27 percent of total income for lower-income Americans.

The DOL assigns each state an H‑2A minimum wage—known as the Adverse Effect Wage Rate (AEWR)—which sets the wage that employers must offer to U.S. workers before hiring H‑2A workers and which must be paid to H‑2A workers. Right now, the H‑2A AEWR is based on the regional average wage paid to field and livestock workers reported in the Farm Labor Survey from the U.S. Department of Agriculture (USDA). DOL’s use of this survey is highly problematic because its methodology effectively guarantees continuous increases in the AEWR. Here is why:

DOL adjusts the AEWR annually based on a survey and uniquely classifies overtime, hazard pay, bonuses, performance incentives, and all other payments as wages. This inflates the base hourly rate before adding these types of extra compensation for the following year. This inflated average rate then applies to all workers, pricing out H‑2A and U.S. workers who had below-average wages. When these workers drop out, the surveyed wage is artificially inflated even further.

Partly because of these procedures, the H‑2A AEWR has increased much faster than the increase in the Employment Cost Index—which measures changes in the cost of employment nationwide. From 2006 to 2022, the nominal AEWR (the average of state AEWRs) increased 71 percent compared to 52 percent in the Employment Cost Index (Figure 2). In other words, the AEWR is having its intended effect of raising the price for farm labor faster than the price for labor generally.

These additional H‑2A labor costs are now important more than ever because the H‑2A program is growing rapidly. From 2011 to 2022, the number of certified H‑2A positions has increased from about 90,000 to nearly 380,000 (Figure 3). Farmers attempting to receive H‑2A workers must also offer U.S. workers the AEWR, and the number of U.S. workers subject to H‑2A contract was nearly 100,000, meaning that nearly half a million farm workers in 2022 were covered by the AEWR. The H‑2A program is growing rapidly at a rate of more than 20 percent per year from 2020 to 2022, and it is showing no signs of slowing down. With the very low unemployment rate in agriculture, it is likely that this growth rate continues, and the number of workers under H‑2A contracts will approach 690,000 by 2024.

The H‑2A program in 2022 covered wage contracts worth nearly $7 billion—already a nominal increase of nearly $2.5 billion over 2020. Given the increases in the AEWR and growth in workers, the amount of H‑2A wage contracts will almost certainly exceed $8.7 billion in 2023 and likely reach $11.3 billion by 2024. These projections assume that the number of workers keeps growing at its current 20-percent pace, and the AEWR grows at a projected 8 percent (which is the current year-over-year growth rate for the average wage in the Farm Labor Survey as of May). Figure 4 shows the astounding increase in H‑2A wage expenditures from 2006 to 2022 (with projections for 2023 and 2024 based on current trends).

Also, these growing expenditures also mean that the H‑2A wages now make up a much larger proportion of total labor expenditures for U.S. farms overall. H‑2A wages hit about 19 percent of all farm labor expenses in 2022 and would reach 29 percent of all labor expenses by 2024 if current trends continue (including the trend for overall increases in farm labor expenses). This means that the AEWR is having a powerful influence on the cost of food production in the United States, and its importance will grow much larger in the next two years.

How the Farm Workforce Modernization Act Would Help

The Farm Workforce Modernization Act (H.R. 1603) would put the brakes on AEWR increases by first freezing the AEWR for the next year (2023) and then capping increases at 3.25 percent for nine years after that. Given the fact that the AEWR is likely to increase by about 8 percent in 2023, the 3.25 percent cap will effectively be the new AEWR from that point forward. Using the projections of the AEWR and number of workers described in Figure 3, the bill’s new rules would have the effect of reducing H‑2A wage expenditures by nearly $2.8 billion over 2022 to 2024—$1 billion in 2023 and by nearly $1.8 billion in 2024. The savings are higher in 2024 than 2023 because the projection assumes both a 20 percent increase in workers and an increase in the AEWR of 8 percent in each year. The savings in later years would also likely grow. Florida farmers would see the largest savings of nearly $337 million over two years. 

The scale of this estimate is most sensitive to the assumption about the growth in the number of H‑2A workers. The estimate of 20-percent growth used in this post is based on the growth rate for 2020 to 2022. Given the low unemployment rate and the increasing demand for agricultural products, it is reasonable to expect this trend to continue regardless, but the Farm Workforce Modernization Act actually contains several provisions that could cause even more farms to use the H‑2A program.

First, the bill streamlines the approval process in important ways, such as by creating a single filing portal to replace multiple applications and eliminating duplicative application reviews by different agencies. Second, it expands the program to year-round farm jobs like those on dairies. These jobs would have a cap of 20,000 in 2023 and up to 22,500 in 2024 (so up to 42,500 cumulatively would be working in 2024), but the cap could be waived for severe shortages. Without getting into every provision, the legislation is deregulatory beyond just the wage provisions, making it highly likely that the program continues to expand with its passage.

Conclusion

The agricultural products market is highly competitive, and wage savings would benefit both farms and consumers. Farmers would likely spend the same amount on labor but could hire about 125,000 additional workers to increase production. Under the Farm Workforce Modernization Act, farm productivity would increase by more than the $1.8 billion in savings on labor, which would expand the supply of goods and result in a proportional decline in prices for food consumers.