Explaining the Growth in Agricultural Guest Worker Demand Diane

Explaining the Growth in Agricultural Guest Worker Demand

Diane Charlton Department of Agricultural Economics & Economics Montana State University [email protected]

Marcelo Castillo USDA - Economic Research Service [email protected]

Tom Hertz [PRESENTING AUTHOR] USDA - Economic Research Service [email protected]

Selected Paper prepared for presentation at the 2018 Agricultural & Applied Economics Association Annual Meeting, Washington, D.C., August 5-August 7

Copyright 2018 by Charlton, Castillo, and Hertz. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Explaining the Growth in Agricultural Guest Worker Demand

Diane Charlton Department of Agricultural Economics & Economics Montana State University [email protected]

Marcelo Castillo USDA - Economic Research Service [email protected]

Tom Hertz USDA - Economic Research Service [email protected] May 18, 2018

Views expressed are those of the authors and should not be attributed to the Economic Research Service or USDA.

Farm labor markets are tightening, evidenced by rising wages, decreasing migration from Mexico, and increasing reports of difficulty securing an adequate workforce at economically viable wages. One indicator of this tightening is the rapid growth of the H-2A agricultural guest worker program. Farmers applied for 206,000 H-2A positions in FY2017, a four-fold increase since FY2005. This occurred despite the administrative burdens and economic costs of the H-2A program, which include determining in advance when workers are to be employed, guaranteeing minimum hours of work, providing housing and international transportation at no cost, demonstrating that no U.S.-born workers were available to fill the positions, and

1 paying at least the Adverse Eﬀect Wage Rate (AEWR) set by DOL. The AEWR is based on the average wage for all nonsupervisory agricultural occupations in the region in the prior year, as estimated by the USDA-NASS Farm Labor Survey, and is thus higher than the market wage for many lower-paid workers. The H-2A program has thus acted as a labor supply of last resort, allowing farmers to meet growing demand for fresh fruits, vegetables, and other labor-intensive commodities through contractual agreements and a legal visa process. Despite the associated costs of contracting employees through the H-2A program, demand for H-2A workers has grown rapidly over the past twelve years; yet growth in the program has been geographically uneven. While some states that had traditionally not made much use of the program have seen rapid growth in H-2A utilization, others have grown only slowly or have reduced their H-2A usage. Our research exploits this state-level variation to test four main hypotheses about what drives H-2A adoption: (i) the passage of state laws that require the verification of the legal immigration status of all new hires may drive employers to file for guest workers as a substitute for unauthorized immigrant labor; (ii) demand for H-2A guest workers may rise as the local labor supply tightens, indicated by a falling unemployment rate; (iii) rising wages for seasonally labor-intensive fruit- vegetable-, and horticultural (FVH) crops may induce employers to seek additional labor through the H-2A program even though H-2A workers are relatively costly; and (iv) the presence in the state of filing agencies, such as H-2 consultants and growers’ associations, may promote H-2A growth by reducing the cost of filing for H-2A workers. The findings should assist policy-makers who are currently seeking to modify the H-2A program to better understand the likely impact of any program changes and to understand the factors driving demand for H-2A workers. Roughly fifty percent of crop farm workers in the United States are unauthorized (Udani, 2016). E-verify is a free online system created and operated by the federal government and has been available to employers in all states since 2003. The system matches information in the employment eligibility form (Form I-9) with information recorded with the Social

2 Security Administration and the Department of Homeland Security. If the information does not match employers are notified, and the employer is required to notify the employee. The employee has ten days to contest the determination; if s/he is not successful, the employer is required to fire the worker. E-verify mandates were passed in 11 states between 2007 and 2016 at different times, although not all of these apply to private sector employers, and some exempt smaller firms. Controlling for state fixed effects, we can examine changes in H-2A demand within states after E-verify mandates were passed. It is not obvious, however, that such laws would have a clear effect on H-2A demand. Amuedo-Dorantes and Bansak (2012) suggest it is more difficult to enforce E-verify mandates in agriculture than in other sectors, and that unauthorized immigrants that remain in the state after E-verify comes into effect may shift towards agriculture for this reason. If that is the dominant trend, E-verify might have little effect (or even a positive effect) on farm labor supply, and hence little effect (or even a negative effect) on demand for H-2A workers. Moreover, changing social, demographic, and economic factors in traditional migrant-sending regions have led to a rapid reduction in the size of the potential farm labor force, for reasons not related to workplace enforcement of work authorization requirements. Thus E-verify may have a relatively small, and potentially undetectable, effect on the farm labor supply (Charlton and Taylor, 2016). The second hypothesis is that H-2A utilization grows as unemployment rates fall. If this relationship is detected, it lends credence to the claim that H-2A workers do not displace U.S.-born workers, which is one of the Department of Labor’s primary concerns. A better understanding of this dynamic could help policy makers set guest worker program regulations that reflect economic conditions, and predict future program growth. The third hypothesis we test is whether growing H-2A utilization is in fact a response to rising costs of labor for labor-intensive fruit- vegetable- and horticultural (FVH) crops. It is not clear that growth has been fastest in states, or in years, where/when farm wages have risen fastest. In particular, real farm wages at the national level did not increase between 2016 and 2017, according to NASS’s Farm Labor Survey, yet H-2A growth accelerated in

3 that period. Our analysis measures the eﬀects of lagged mean real weekly wages paid to FVH workers on H-2A demand. A better understanding of these eﬀects could be of value to policy makers who wish to design a guest worker program that is calibrated to national or regional economic conditions, as many such programs are. Fourth, and finally, we test whether the fastest growth in H-2A utilization has occurred in states with greater numbers of cost-reducing intermediaries, such as growers’ associations and specialized H-2A consulting firms, who are more familiar with the application process, and have better access to foreign recruiting networks. In 2007, these intermediaries were concentrated in only a few states, but the number of intermediaries has grown in the past ten years. We test whether H-2A growth has been faster in states with higher initial concen- trations of intermediary filing agencies, as described below. If these intermediaries accelerate H-2A growth by reducing the up-front cost of applying for H-2A visas, then we can expect H-2A demand to grow even faster as more intermediary filing agencies are established.

I. Growing Demand for H-2A

The H-2A program was created in 1986 as an outcome of the Immigration Reform and Con- trol Act (IRCA). Initial take-up of the H-2A program was low, and historically agricultural employers have cited the high cost and burden of applying for H-2A visas as the primary barrier to using the program. To qualify for H-2A certification, the proposed job must be temporary or seasonal; employers must take certain steps aimed at demonstrating that there are insufficient U.S. workers willing, able, and available to do the work, and that employment of H-2A workers will not adversely affect the wages and working conditions of similarly employed workers. If the employer can meet these criteria, he/she files a job offer with the State Workforce Agency (SWA) in the region of intended employment sixty to seventy-five days before the specified employment start date. If the job offer is accepted by the SWA, employer must then file for a temporary labor certification for H-2A workers from theU.S. Department of Labor. Next, the employer files an I-129 form with the U.S. Citizenship and

4 Immigration Services (USCIS). Finally, prospective workers apply for the visa from outside the United States or apply for admission under the H-2A classification at a port of entry (US Citizen and Immigration Services, 2017). Figure 1 illustrates the process employers must follow to obtain H-2A visa certification. Despite the complexity of obtaining H-2A certification, demand for H-2A agricultural guest workers has grown steadily over the past ten years (see figure 2). The number of H-2A positions certified grew from 75,000 in 2007 to 200,000 in 2017. This rise in guest worker demand may be due in part to a decline in the supply of unauthorized immigrants from Mexico willing to work in agriculture. The National Agricultural Worker Survey (NAWS) shows that in 2013-14, the shares of U.S. crop workers born abroad and in Mexico were 73 percent and 68 percent, respectively. This indicates the strong reliance of U.S. agriculture on Mexican and foreign-born workers. However, studies indicate that net migration from Mexico to the United States has been negative since 2010 (Passel et al., 2012). Meanwhile, rural Mexico is transitioning out of farm work, and the United States is competing with Mexican farms for a limited supply of workers (Charlton and Taylor, 2016). As a result of this tightening of the farm labor supply, U.S. farm wages have risen throughout the country over the past ten years and are expected to continue rising. As farm wages rise and the supply of seasonal farm labor becomes less dependable, the H-2A program is likely to become a more viable option for agricultural employers, particularly for more seasonally labor-intensive FVH crops. Increases in the levels of H-2A certified workers has been most highly concentrated injust five states: Florida, North Carolina, Georgia, Washington, and California (Martin, 2017). Nevertheless, analysis of the data show striking percentage rates of growth of H-2A take-up in many states across the country and simultaneous declines in a few states. This variation in H-2A growth permits us to test our four hypotheses about the determinants of H-2A demand, by looking at the eﬀects of state-year variation in the implementation of statewide E-verify mandates, changes in the state unemployment rate, average real weekly wages for

5 Figure 1: H-2A Application Flow Chart

Source: U.S. Department of Labor. 2012. Employer Guide to Participation in the H-2A Temporary Agricultural Program.

6 Figure 2: Growth in Certified H-2A Positions 200 150 100 Certified H-2A Positions (Thousands) 50 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Fiscal Year

Source: Authors’ analysis of Office of Foreign Labor Certification H-2A application data.

FVH labor, and the presence of cost-reducing H-2A filing intermediaries in the state in the base year (2007). The evolution of these covariates is described next. Table 1 shows which states passed E-verify mandates, the year they became eﬀective, and which employers are subject to the mandates. Some states passed mandates that apply only to government agencies and government contractors, or to firms with a minimum number of employees. Since few agricultural producers are government agencies or contractors, we only count those states that passed mandates that apply to all employers (Alabama, Arizona, Mississippi, and South Carolina) or to all employers above a minimum size (Georgia, North Carolina, Tennessee, and Utah), under the assumption that larger employers generate the

7 bulk of H-2A applications. Although employer compliance with E-verify is not perfect, many studies show that the share of unauthorized immigrants in the state population declines after a state passes an E-verify mandate (Orrenius and Zavodny, 2015; Bohn, Lofstrom and Raphael, 2015; Amuedo-Dorantes and Bansak, 2012), suggesting that actual enforcement, or at least its threat eﬀect, is substantial enough to aﬀect the geographic location decisions of unauthorized immigrants. If agricultural workers are among the unauthorized immigrants that leave the state, farm employers may turn to the H-2A program as a substitute labor force.

Table 1: E-Verify Mandates

State Date Mandate became Eﬀective Employers Subject to Mandate

Alabama April 2012 All Employers (Phased in) Arizona January 2008 All Employers Colorado August 2006 State & Local Govt Contractors Florida January 2011 State Agencies & Contractors Georgia 2006 State Agencies & Contractors until July 2013 when extended to all firms of a minimum size Idaho May 2009 State Agencies & Contractors Indiana July 2011 State & Local Govt Agencies & Contractors Louisiana January 2012 State & Local Govt Contractors Michigan 2012 State Agencies & Contractors Minnesota January 2008 State Agencies & Contractors of minimum size Mississippi July 2011 All Employers Missouri 2008 State Agencies & Contractors Nebraska October 2009 State & Local Govt Agencies & Contractors North Carolina March 2007 State Agencies until 2011 when extended to private firms of a minimum size (seasonal employees excluded) Oklahoma November 2007 State & Local Govt Agencies & Contractors Pennsylvania January 2013 State & Local Govt Agencies & Contractors of minimum size Rhode Island March 2008-2011 State Govt Agencies & Contractors South Carolina July 2010 All Employers Tennessee January 2017 All Employers of minimum size Texas December 2014 State Govt Agencies & Contractors Utah July 2009 State & Local Govt Agencies & Contractors until 2010 when extended to firms of a minimum size Virginia December 2012 State Govt Agencies & Contractors of minimum size Sources: NumbersUSA. “Map of States with E-Verify Laws.” Published May 27, 2016. https://www.numbersusa.com/resource-article/everify-state-map. Accessed May 2, 2018. Tracker Complete Compliance. “E-Verify Laws by State.” http://www.trackercorp.com/everify-legislation-map.php. Accessed May 2, 2018.

Local economic conditions may also have an impact on H-2A demand. The H-2A program requires that employers first advertise their job openings locally, and, typically, in nearby states as well. The job qualifies for H-2A certification only if domestic workers are unwilling or unable to take the job. Conversations with agricultural employers and consulting agencies suggest that hiring workers through the H-2A program is a last resort for employers when employers feel they have no other options for finding sufficient workers. Consequently, local labor market dynamics may have substantial eﬀects on the demand for H-2A guest workers. We use annual state unemployment rates as indicators of labor availability, but it should be

8 noted that their effect on H-2A demand is uncertain: Many reports suggest that few U.S. born workers are willing to do farm work, even when unemployment rates are high (Fan, Alves Pena and Perloff, 2015). Even among low-wage immigrants, many foreign workers move out of the farm sector to the service or construction industries as soon as they have opportunity to do so (Martin and Calvin, 2010). Still, the period in question is well suited to testing the effects of unemployment rates, as they have varied considerably since 2007, peaking shortly after the onset of the Great Recession and subsequently falling to pre- recession rates. Figure 3 plots the mean unemployment rates from 2006-2017.

Figure 3: Mean Unemployment Rates (2006-2017) 9 8 7 6 5 Mean Unemployment Rate across States 4 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Year

Source: Authors’ analysis of Bureau of Labor Statistics data.

The most labor-intensive crops are most likely to be aﬀected by tightening of the farm labor supply. Fan et al. (2015) find that farm workers have become less geographically mobile in recent years, potentially reducing the availability of labor to FVH crops, which typically

9 require large seasonal workforces, more than other crops. Figure 4 shows the growth in mean real weekly wages for FVH workers for 2006-2016. Both supply and demand factors could lead to rising wages in the FVH sector. Whether increased production has caused demand for labor to shift outward, or labor supply has shifted inward, rising wages suggest that the farm labor supply is becoming tighter relative to the demand, and employers may seek more labor through the H-2A program.

Figure 4: Mean Real Weekly FVH Wages ($2016, 2006-2016) 560 540 520 Mean Real Weekly Wages for FVH across States 500 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Year

Source: Authors’ analysis of Bureau of Labor Statistics (QCEW) data. Reported is the average weekly wage for all wage and salary workers in NAICS industry codes 1112 (vegetable and melon farming), 1113 (fruit and tree nut farming) and 1114 (greenhouse and nursery production). Note that QCEW’s coverage of agriculture is incomplete in most states, and is biased towards larger employers. Converted to real (2016) dollars using the CPI-U.

Finally, unequal costs across states of filing, and of learning H-2A compliance measures, may determine the rate of growth in H-2A demand. Applications may be filed...” Applica- tions may be filed on behalf of the grower by any of five types of entities: growers’ associations

10 Figure 5: Applications Filed by Type of Filer, 2007-2016

8000 Associations & Consultants Law Firms & Agents Growers 6000 4000 Applications Filed 2000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Fiscal Year

Source: Authors’ analysis of OFLC H-2A disclosure data.

(e.g., the North Carolina Growers Association); H-2A consulting agencies (e.g., Agworks); law firms; H-2A agents; or the growers themselves. Figure 5 shows that growth inappli- cations has been driven by filings from growers associations and H-2A consultants, with little or no growth in the number of applications generated by the smaller filing entities (law firms, agents, and self-filers). We hypothesize that the larger filing intermediaries (growers associations and H-2A consultants) reduce the cost of acquiring H-2A workers by reducing information costs, network-creation costs, and the risk of unintentional non-compliance with H-2A requirements, which can lead to fines; we thus refer to these two groups as “low-cost filing intermediaries.” Growers’ associations vary in the degree of their involvement in the H-2A hiring process. A select few organizations, such as the North Carolina Growers’ Association, act as a joint

11 employer of H-2A workers, reducing individual employer liability and allowing workers to move from farm to farm during their contract period. Other associations, such as the Wash- ington Agricultural Farm Labor Association (WAFLA) file for individual employers, educate farm employers about the H-2A program, help employers with compliance measures, and use their networks in Mexico to recruit workers and match them to H-2A employers. Because the number of such entities is likely to be endogenous, as both cause and eﬀect of rising H-2A demand, we observe the share of applications filed by these low-cost intermediaries in the base year, 2007, and hypothesize that states where low-cost filing intermediaries were better represented experienced faster growth in H-2A take-up than other states. Data on the numbers of such intermediaries in each state were culled from our primary H-2A data source, described below.

II. Data

Our measure of the number of H-2A certifications in each fiscal year from 2007 to2017 comes from the U.S. Department of Labor, Employment and Training Administration, Office of Foreign Labor Certification (OFLC) disclosure dataset. Occasionally employers file the necessary paperwork and get a job certified but do not hire an H-2A worker. Consequently, the number of certified H-2A workers exceeds the actual number of H-2A workers admitted to the United States each year (Martin, 2017); still the number of H-2A certifications in each year is a valid measure of the demand for H-2A workers. Ninety-six percent of requested positions were certified in 2016, and similar percentages were certified in previous years. Unlike the non-agricultural H-2B guest worker program, there is no cap on the number of H-2A workers admitted to work in the United States each year. For FY2014-2017, the OFLC data contain the name of the filing company and an indicator for whether the filing company is a growers’ association filing on behalf of an employer. We determine which filers are H-2A consulting agencies indirectly, by first determining which filers are law firms, or certified H-2A agents, the only other parties authorized bytheDOLto

12 file on behalf of an employer. We consider a filing company to be a law firm oranH-2Aagent if the company name (1) contains law-related keywords such as “Law,” “PLC,” or (2) consists entirely of a personal name. All filing companies not categorized as growers’ associations, law firms, or H-2A agents, are deemed consulting agencies. We perform internet searchesto corroborate the validity of our classification scheme.

Figure 6: Percent of Applications Filed By Low-Cost Filing Intermediaries in Each State in 2007 4 3 2 Frequency 1 0 20 40 60 80 100 Percent of low-cost applications in state in 2007

Source: Authors’ analysis of OFLC H-2A disclosure data.

For FY2014-2017, in addition to the name of the filing company, we also have a variable that contains the name of the person that filed the petition. Unfortunately, for FY2007-2013 this information is combined in a single variable. That is, sometimes we know the name of the filing firm (“Agworks”), other times we know the name of the person that files (“Patricia Hall”), and sometimes we know both (“Patricia M Hall Agworks H2”). To deal with this issue, we use the filing company and agent names available in the latter years of ourdataset

13 to categorize applications by filing company for 2007-2013. We use internet searches to categorize unmatched observations. Through this process, we can assign a filing company name to over 90 percent of H-2A workers in 2007-2013. Figure 6 plots the share of each state’s applications filed by our designated low-cost filing intermediaries (growers associations and H-2A consultants), in 2007. In order to measure the eﬀect of this variable on state growth trends, we create three groups of states: the 7 states for which this share was less than 50 percent are grouped together to represent states with the least access to low-cost intermediaries; the 17 states with between 50 and 80 percent of applications filed by low-cost intermediaries form the second group; and the remaining 25 states with better than 80 percent representation by low cost filers are the final group; (Alaska is omitted; it has virtually no H-2A applications). Table 2 summarizes the number of H-2A certified positions in the 49 states between 2007 and 2017 along with the two other explanatory variables that we include; these two variables are lagged by one year, to reduce concerns about endogeneity. The table reports means and standard deviations, with the latter broken into within- and between-state variation. The within-state variation is essential for identifying changes in H-2A demand within a state over time after controlling for state fixed eﬀects.

Table 2: Summary Statistics

VARIABLE Mean Overall SD Between SD Within SD Min Max Observations

H-2A Certified Positions 2,249 3,463 2,920 1,905 2 25,303 539 T=11: (2007-2017) n=49 Unemployment Rate 6.24 2.18 1.17 1.85 2.61 13.8 539 T=11: (2006-2016) n=49 Avg Weekly FVH Wages 526 74.7 70.4 26.9 372 912 505 T=11: (2006-2016) n=47 Source: Authors’ analysis of OFLC H-2A disclosure data; BLS unemployment rates; and QCEW wage data. Wage data missing for North and South Dakota, Wyoming, and one year in Nevada.

14 III. Empirical Model

We exploit the variation in the growth of H-2A demand across U.S. states to identify the effects of diﬀerent factors on demand for H-2A workers. Let H2As,t be the number of certified H-2A positions in state s in year t. We estimate equation 1 as follows:

H2As,t = β0 + β1everifys,t + β2Xs,t−1 + αs + αt + s,t (1)

where β0 is a constant, everifys,t is a dummy variable indicating whether state s had a relevant E-verify mandate in eﬀect in year t, Xs,t−1 includes the state unemployment rate and the mean weekly FVH wage in state s in year t − 1, αs is a vector of state fixed eﬀects,

αt are year fixed effects, and s,t is the error term, assumed to be uncorrelated with the explanatory variables. The state fixed effects control for time-invariant characteristics of the state, and year fixed effects control for national shocks in any given year. Because state-specific, time-varying unobserved factors could correlate with the explanatory variables and with H-2A demand, we estimate a second specification that additionally controls for state-specific linear time trends denoted by γs · t.

H2As,t = β0 + β1everifys,t + β2Xs,t−1 + αs + αt + γs · t + s,t (2)

The final hypothesis we test is whether H-2A demand grows more rapidly in states that have a greater number of H-2A filing intermediaries. Let LCs,2007 be a vector of variables, the first equal to 1 if less than 50 percent of applications instate s were filed by a low-cost intermediary in 2007, the second equal to 1 if that share was between 50 and 80 percent, and the third equal to 1 if that share was greater than 80 percent. To measure diﬀerential

15 growth trends across these three groups of states, we interact LCs,2007 with a time trend t, dropping the previous state-specific time trends, which are now redundant:

H2As,t = β0 + β1everifys,t + β2Xs,t−1 + β3LCs,2007 · t + αs + αt + s,t (3)

We test whether each of the coefficients in β3 are equal to one another using t-tests. Our hypothesis is that the coefficient, which represents an annual increase in H-2A certifications, will be larger for the states with more base-year activity by low-cost intermediaries.

IV. Findings

Our findings are reported in Table 3. Column (1) regresses annual H-2A certifications ineach state-year against the indicator for the presence of a relevant statewide E-verify mandate, and the state unemployment rate, following equation 1. Column (2) adds a control for average weekly wages in FVH. Columns (3) and (4) control for state-specific trends as in equation 2. Column (5) includes differential state trends for states with different levels of activity by low-cost filing intermediaries in the base year, as described above. All equations include state and year fixed effects, and report standard errors that are robust to heteroskedasticity, and to intra-cluster (state) correlations in error terms. We find no support for our first hypothesis, namely, that E-verify mandates increase demand for H-2A workers. The point estimates do have the expected positive sign: taken at face value they suggest that H-2A demand rose by between 409 and 1897 additional workers post-E-verify. Yet their standard errors are quite large, leaving us unable to draw any firm conclusions one way or the other about the impact of E-verify.1

1We also ran the equation with the E-verify variable coded to flag only those four states who applied E-verify to all private employers, regardless of size (results not shown in table). In that coding, the coefficient on the E-verify variable was positive (on the order of 1,200) and statistically diﬀerent from zero at the 10 percent level in columns (3) and (4). However, the resulting point estimates were near zero in specification (1), and negative in specifications (2) and (5). Given this instability, and given that there is no compelling reason to exclude the remaining three states (whose mandates applied to larger employers only, representing

16 Table 3: Models of Number of Annual H-2A Certifications

Variables (1) (2) (3) (4) (5)

E-verify 1,897.254 1,793.219 408.683 413.898 1,840.030 (1,264.763) (1,284.705) (564.512) (572.359) (1,270.237) Lagged Unemployment Rate -317.283*** -273.842** -374.127** -391.694** -263.130** (109.916) (105.986) (157.266) (163.519) (105.561) Lagged Avg Weekly FVH Wages 10.647 2.803 4.616 (6.364) (3.302) (5.521) <50% Low-Cost Filers ·t 117.442** (51.672) 50-80% Low-Cost Filers ·t 425.195** (177.868) >80% Low-Cost Filers ·t 109.569*** (39.294) State Trends No No Yes Yes No

Observations 539 505 539 505 505 R-squared 0.241 0.258 0.857 0.860 0.317 Number of States 49 46 49 46 46

T-Tests of Equality of Trends 50-80% Low-Cost Filers ·t vs. <50% Low-Cost Filers ·t 1.72* >80% Low-Cost Filers ·t vs. <50% Low-Cost Filers ·t -0.13 >80% Low-Cost Filers ·t vs. 50-80% Low-Cost Filers ·t -1.75* Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1 Source: Authors’ analysis of dataset described in text.

We do find consistent support across specifications for the effect of the state unemployment rate, with a one-percentage-point increase in (lagged) unemployment corresponding to a statistically significant reduction in H-2A demand of between 263 and 392 workers. Surprisingly, however, average weekly wages do not appear to have a significant effect on H-2A demand. Again, the point estimates have the expected positive sign, suggesting that an increase of one dollar per week in the (lagged) average wage raises H-2A demand in the state by between 3 and 11 workers; but the standard errors are too large for us to be able to either rule out a zero effect of the wage rate, or to conclude that it is actually equal to zero. Last, we find that H-2A growth was fastest in states for which 50-80 percent of applica- the bulk of farm employment), we do not consider this to be evidence of that E-verify laws have driven up demand for H-2A workers.

17 tions were filed via low-cost intermediaries in 2007: this category of states saw H-2A demand grow by 425 workers per year, which was significantly diﬀerent (at the 10 percent level) from the figure of 117 for states with lower low-cost filing shares, and from the estimate of110 for states with higher shares of low-cost filers in 2007. We consider the implications ofthese results, and suggest some possible improvements to the model, in our concluding section.

V. Discussion and Suggestions for Further Research

The failure to find an effect of E-verify has several possible explanations. First, asnoted,is the fact that our study was unable to generate precise estimates of this effect, likely due to the limited degree of variation in the E-verify variable. A second, more substantive possibility is that E-verify is imperfectly enforced, and may in fact increase labor supply to agriculture if enforcement there is especially weak, as noted above. However, this does not mean that immigration enforcement in general has had no effect on H-2A demand. In addition to E- verify, other enforcement procedures such as federal raids on farms, I-90 audits, and direct county participation in enforcement via 287(g) agreements with the federal government, may be encouraging growers to seek legal temporary workers. The data needed to test these hypotheses are being assembled, and will be discussed in future work. Opposition to guest worker visa programs often stems from concerns that immigrants take jobs from domestic workers. Our findings demonstrate that demand for H-2A workers is responsive to changes in the lagged local unemployment rate. In most states, the unemployment rate fell by about 4 percentage points between 2010 and 2017; our results suggest this led to an increase in H-2A demand of roughly 1100 to 1600 workers per state, which represents a nontrivial proportion of the overall increase in H-2A utilization. This does not prove that there is no displacement of U.S. born workers by H-2A workers, but it does suggest that growers are using H-2A as a last resort, when other workers are not available. These estimates could be used to inform the setting of guestworker program regulations that vary with local economic conditions.

18 The failure to find an effect of the wage rate on H-2A demand is puzzling, giventhe widespread acknowledgement that H-2A growth is fundamentally a response to the increased scarcity of labor. As always, this failure may represent a relative lack of statistical power in our analysis, and is not conclusive evidence that the wage effect is truly zero. Still, while real farm wages are rising, they are not rising at rates that are anywhere near as unprecedented as the growth in H-2A demand. One explanation may be that farm labor demand is relatively elastic (wage-responsive), due to the constraints imposed by import competition, while farm labor supply is relatively inelastic (unresponsive to the wage rate). In such a situation, a decrease in the supply of (non-H-2A) labor will have only a modest effect on the market wage, but a significant negative effect on non-H-2A employment, which is then replaced with H-2A employment. In such a situation, within-state wage changes may not correlate well with H-2A demand. It is also possible, however, that our wage measure is not well suited to the task of measuring the costs on non-H-2A labor, either due to poor measurement, poor correspondence with the occupations that the H-2A program supplies, or to endogeneity. We have tried to mitigate endogeneity by considering the lagged wage rate, which, after all, is the information farmers have on hand when they are applying for H-2A workers; but this may not be an adequate identification approach. An alternative that we are pursuing isto use the QCEW wage data as an instrument for a more direct measure of the wage of H-2A workers in each state and year, obtained from the OFLC disclosure data itself. Lastly, we found that greater use of low-cost filing intermediaries did in fact predict faster growth in H-2A demand, although not monotonically. It would appear that states with little initial reliance on filing intermediaries were relatively slow to adopt H-2A. States in amiddle range grew the fastest, which is consistent with an expansion of the market share of the H-2A business being captured by established intermediaries and new entrants. It may then be the case that states that already made 80 percent or more of their H-2A applications via intermediaries had less scope to expand that share. One way to pursue this question would be to decompose the growth of H-2A demand according to growth in the number of

19 intermediaries versus the number of applications per intermediary (as well as the number of workers requested per application) and to see how that varies across states. At any rate, the simple descriptive evidence clearly indicates that growth in H-2A utilization is being driven by these intermediaries, whether or not that can explain the state-by-state patterns. This has implications for policy makers who are seeking to modify or replace the H-2A program: their audience is not just the growers, but an increasingly sophisticated ecology of intermediaries.

20 References

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