The purpose of this report is to:

• determine the share of farm and retail prices attributed to farm worker wages and benefits to produce major labor-intensive commodities in California

• determine the multiplier effect of farm worker employment on selected rural counties and regions

The report was prepared to contribute to the effort of the California Coalition for Rural Housing, with the support of the Rural Community Assistance Corporation, to highlight farm worker contributions to the state’s economy and agriculture.

A significant increase in farm wages would have little effect on retail prices. For example, if a 35 percent farm worker wage increase were fully passed through to consumers, and if there were no productivity improvements in response to the farm worker wage increase, the farm worker wages and benefits embodied in a $1 head of lettuce would rise from about 7 to 9 cents, and the retail price from $1 to $1.02. The average American consumed about 12 heads of lettuce in 1998, so a 35 percent increase in farm wages and benefits would increase an average individual’s lettuce expenditures by $0.25 a year, a quarter; a 70 percent wage increase would raise lettuce expenditures by less 50 cents a year.

The minimum wage rose 35 percent when it went from $4.25 an hour in 1996 to $5.75 in 1998. A 70 percent wage increase is needed to enable farm workers to pay 30 percent of their earnings in rent and have health insurance.

Similarly, the average American consumes about eight pounds of table grapes a year; they cost an average $1.72 a pound. Table grape growers receive an average $0.50 a pound or 29 percent of the retail price; total labor costs are $0.16 a pound, which is 33 percent of grower production costs and 9 percent of the average retail grape price. If grape labor costs were to rise by 35 percent, table grape labor costs would rise $0.05 a pound to $0.22 a pound, retail prices would rise to $1.77 a pound, and consumer spending on grapes would rise by under $0.50 a year.

For all fresh fruits and vegetables, the average American would spend about $34 a year more if farm worker wages rose 35 percent, and $67 more if they rose 70 percent. The major reasons why a big increase in farm wages has little effect on retail prices is because farmers get a small share of the retail price and farm workers are a small share of farm production costs. For a $1 head of lettuce or a $1 pound of tomatoes in the supermarket, farm worker wages and benefits are about 7 cents, which represents (1) 7 percent of the retail price and (2) 35 percent of the farmer’s price of these commodities.

In some cases, Americans do not eat much of commodities that are very labor-intensive. Take raisins. Per capita consumption is only 1.6 pounds per person per year. Labor costs are represent about one-third of the grower’s average $0.50 price per pound. However, Americans spend only about $2.40 per year on raisins, so that even if farm labor costs rose by 35 or 70 percent, average spending on raisins would rise by only one cent.

How would an increase in farm worker wages affect farm workers? Seasonal farm workers are employed an average 1000 hours a year in agriculture, earning $6 to $7 an hour. Raising farm wages by 35 percent would boost average hourly earnings to $8.10 to $9.45, by 70 percent to $10.20 to $11.90. If farm workers were employed the same 1000 hours a year after wages rose 35 percent, their earnings would rise from the current $6,000 to $7,000 to $8,100 to $9,450 a year with a 35 percent wage increase, and to $10,200 to $11,900 with a 70 percent wage increase.

Raising farm wages and benefits would likely encourage farmers to re-organize farm work in a manner that reduced farm worker employment and labor costs, leaving fewer but better paid farm workers. Historically, flexibility in the US food system has been on the demand side of the labor market. As wages and opportunities improved in the nonfarm sector, farmers and farm workers migrated to nonfarm jobs, reducing the share of the US labor force employed in agriculture from 90 to 2 percent over the past two centuries.

Agriculture remains a major employer in California. Farm worker employment averaged 393,000 in 1998, and ranged from a low of 307,000 in January-February to a high of 479,000 in August-September. Over the course of a year, about 800,000 individuals or Social Security Numbers are reported by farm employers to state Unemployment Insurance tax authorities, suggesting that there are about two persons employed sometime during the year to fill each year-round equivalent job on the state’s farms. This explains why, on average, farm workers are employed only half of the standard 50-week- a-year, 40 hour- a-week or 2000-hour work year.

Farm worker employment is concentrated in the same counties that have most of the state’s farm sales. The top five agricultural counties—Fresno, Kern, Tulare, Monterey, and Riverside—had 47 percent of average annual farm worker employment and 45 percent of farm sales in 1998. The multiplier effect of farm production employment is estimated at 1.5 to 2, which means that each farm job supports an additional 1.5 to 2 nonfarm jobs involved in processing and distributing the commodities produced with the help of farm workers or providing housing and other services to farm workers.

Most farm workers rent housing, and their earnings need to double to afford the fair median rent. According to the US Department of Labor NAWS, farm workers in 1996-98 earned an average of just under $6 an hour for about 1100 hours of work a year, earning $6,500 a year or $542 a month. If farm workers wanted to spend 30 percent or less of their earnings on housing, they could afford to spend $162 a month. However, the 40^th percentile Fair Market Rent estimate in California is at least double this level: monthly rents for studio apartments range from $339 a month in Colusa county to $387 in Fresno to $548 in Salinas.

Many farm workers have their spouses with them in California, which produces both additional income and often children and thus the need for additional living space. Having a spouse present tends to increase income by 1.5 times, to $813 a month, which permits the family wanting to spend 30 percent or less of its earnings on housing to spend up to $244 a month. However, the 40^th percentile Fair Market Rent estimate in California is at least double this level: monthly rents for two-bedroom apartments range from $488 a month in Colusa county to $517 in Fresno to $773 in Salinas. In order to spend 30 percent or less of earnings on housing, a farm worker family seeking a two-bedroom unit would have to earn $1,600 to $2,600 a month.

How much would farm worker earnings have to rise to enable farm workers and farm worker families to spend 30 percent or less of their earnings on housing in the areas where they work? Single workers would have to earn $1,100 to $1,800 a month to afford the 40^th percentile fair median rent for a studio unit, i.e., their earnings would have to double or triple current levels of $542 a month. Families needing two-bedroom units would have to earn $1600 to $2600, which represents doubling or tripling of their average $813 monthly earnings. Even if we assume that farm workers need housing for only nine months a year because they spend part of each year in Mexico, the earnings of most farm workers would have to at least double to meet the 30 percent of earnings-for-rent guideline.

The total increase in farm worker wages necessary for farm workers to rent affordable housing and to receive health care benefits would require wage increases of at least 57 plus 16 percent, or 73 percent in the cheapest area, Colusa county. In coastal areas and for farm workers with families, the wage increase would have to be over 100 percent.