H‐ <scp>2A</scp> adverse effect wage rates and U.S. farm wages

Abstract Recently proposed legislation regarding farm labor would impact the minimum wage for workers with H‐2A visas. Adverse Effect Wage Rates (AEWRs) are regional minimum wages paid to foreign farmworkers working in the United States under the H‐2A temporary agricultural guest worker program. Recent increases in AEWRs have prompted discussions over the methodology and data sources used to compute them, including debates about whether AEWRs should be frozen or capped in the future. Employer and farmworker groups hold opposing views on the desirability and implications of changes to AEWRs. In this paper, we develop a simple theoretical framework that suggests higher AEWRs may induce spillover effects that lead to higher wages for non‐H‐2A farmworkers. Using confidential wage data from the National Agricultural Workers Survey, we test the labor market spillover hypothesis by comparing changes in non‐H‐2A farmworker wages and AEWRs across U.S. regions between 1996 and 2022. Our estimates suggest that a 10% increase in the AEWR causes, at most, a 2.8% increase in the wages of non‐H‐2A farmworkers across the United States. We find that freezing the AEWR for 1 year would reduce the growth of wages paid to non‐H‐2A farmworkers by as much as $475 million. Our analysis suggests that the recent policy proposals could lower labor costs for U.S. farm employers but limit wage growth for non‐H‐2A farmworkers.