Knowledge Exchange Report

Transcription

1 Knowledge Exchange Report February 2016 The Economic Impact of a Minimum Wage Increase on New York State Agriculture New York State is considering a minimum wage increase from $9.00 to $15.00 statewide. As proposed, a $15.00 minimum wage would be phased in by To estimate the impact of minimum wage changes on agricultural wage rates, we reviewed agricultural wages and labor costs since Our analysis indicated that increased labor costs could impact many farms financial viability and affect future decisions to expand or modernize facilities. This Farm Credit East Knowledge Exchange report attempts to quantify some of the proposal s economic impacts to New York farms. Context and Summary of Major Findings New York agriculture is fortunate to have highly skilled farm workers that work side by-side with farm owners every day. The underlying issue for agriculture when confronted by significant increases in the minimum wage and labor costs is one of competitiveness. New York farmers compete in national and international markets and have limited power to increase their prices. As agricultural markets have become more global, farm prices for many products have become more volatile. Admittedly this makes any analysis subject to alternate viewpoints. The reality is, when 2015 net farm income numbers are released later in 2016, it is likely to show net farm income has declined by 30 to 50 percent in comparison to a much stronger year in In the short term, this volatility could influence the impact of the higher labor costs. It is plausible, although somewhat unlikely, that agricultural markets will have a major resurgence by 2021 and this growth could help offset some or all of the higher labor costs, but this is conjecture and not feasible to factor into this analysis. In developing this report we have primarily used 2012 Census of Agriculture data. While we would prefer more recent data, the Census numbers are far more complete than other sources. Farm Credit East Page 1

2 Key Findings: Using both conservative and historically based projections, we estimate the proposed increase in the New York State minimum wage would result in agricultural labor costs increasing between $387 and $622 million by Without minimum wage adjustments, we believe total labor costs would increase by $50 to $70 million. However, the higher wage costs from minimum wage increases will also drive up other costs, including payroll taxes and workers compensation, and we have not projected these increases in this report. Because New York farm businesses deal in global and national markets and are generally unable to pass costs to consumers, the increase in labor costs is likely to reduce net farm income between 31.8 percent and 51.1 percent. While New York has in excess of 35,000 farms, approximately 10,000 farms actually employ workers and would be impacted by the higher labor cost. We estimate these 10,000 farms generate in excess of 90 percent of New York s net farm income. Farm profitability varies significantly by farm and makes any analysis subject to debate. We anticipate that this increase, without a significant change in farm economic conditions, will place between 1,365 and 1,995 profitable farms in a loss situation. The greatest impact of this wage increase will be on New York s dairy, fruit, vegetable, greenhouse and nursery sectors. Over time, the impact of a significantly higher minimum wage in New York and not in competing states will shift agriculture in two ways: 1. Labor intensive agriculture operations will consider agricultural enterprises that are less labor intensive, such as fruit production shifting to grain production. 2. Full-time farms will transition to part-time farms to avoid hiring labor. Overall, this will reduce the size of New York s agricultural industry. If we see a significant decline in production from labor intensive agricultural sectors, this will impact food processing and marketing businesses that are located in New York. While these businesses may seek raw product from other states, over time some of these businesses will look to relocate closer to major production areas. Farm Credit East Page 2

3 New York Agriculture Overview Agriculture and the related food processing and input sectors are an important economic engine in New York, providing jobs and economic activity: million acres of land 35,537 total farms; 28 percent with employees $5.4 billion in total farm sales $37 billion in economic impact for agriculture and related processing/inputs 156,066 jobs, including agriculture and related processing/inputs 1.7 percent of total New York State employment (agricultural and related processing) 10,345 farms employ 60,944 employees (full- and part-time) Total labor expense on farms is $771,281,000 (hired and contracted labor) Of all farm expenses, labor is one of the most significant, making up 14 percent of total expenses Family Farms Make Up New York Agriculture New York farms of varying sizes are predominantly family owned (98 percent). 2 These farms often have relatively narrow margins and limited ability to influence prices for their products. In addition, the markets for many farm products are regional, national or global, and New York farmers are competing against other producers who would not be subject to the proposed minimum wage increase. Farms often have considerable capital investments and may not be able to make significant short-term production shifts. Given that farms are largely price takers, it is difficult, if not impossible, for farms to simply pass through higher costs for energy, feed or other expenses. Thus, farms are unlikely to be in a position to pass through higher labor costs. Most full-time farm operations have some employees, even if they are limited to seasonal employees. Of the 35,000 farms in New York, only about 28 percent are estimated to have hired farm labor, yet these farms also generate more than 93 percent of the state s net income. Many of these farms are dependent on agriculture as their primary source of income. New York s mix of agriculture is labor intensive. The State produces a significant amount of fruit, vegetable, dairy, greenhouse and nursery products farm sectors that are more labor intensive than the grain and livestock farms that dominate the Midwest. Total farm labor costs in New York are $771 million. 3 For every $100 of production sold, New York farmers paid $14.20 to farm workers, compared to a U.S. average of $8.50. As a comparison, Iowa spends less than three percent of total agricultural sales on labor (see Figure 3). Thus New York agriculture is more sensitive to changes in labor costs than most major agricultural states Census of Agriculture for New York State, USDA and Northeast Economic Engine, Farm Credit East, June Census of Agriculture for New York State, USDA - Includes incorporated farms owned by individuals or families Census of Agriculture for New York State, USDA Farm Credit East Page 3

4 Agricultural and New York Minimum Wage Comparison Historically, New York hired agricultural worker wages have been on average 50 percent higher than the New York minimum wage. This estimate comes from the comparison of these two wage levels for the years It is noteworthy that even as the New York minimum wage has increased five times over the last 11 years, hired agricultural workers wages have remained 50 percent above New York minimum wage, on average (see Table 1). If this historical relationship continues, New York s proposed $15.00 minimum wage would result in hired agricultural worker wages of $22.50 by On a more conservative basis, if the margin remains consistent with 2015 on a nominal basis of $3.71, that would result in an average agricultural wage of $18.71 by Both scenarios were considered in our analysis; therefore we estimate the average agricultural wage to be between $18.71 and $22.50 per hour after the minimum wage increase. The 2015 estimate of $12.46 paid to New York agricultural workers is the baseline for our analysis. If the historical relationship between the minimum wage and agricultural worker wages stays constant, agricultural workers average wages would increase by $10.04, an 80.6 percent increase from the current rate of $ A more conservative analysis, consistent with 2015 s margin, would predict agricultural workers wages to increase $6.25, a 50.2 percent increase, to $ The Census of Agriculture reported New York s total farm labor cost in 2012 was $771 million, so applying this range of increased costs to the total results in an increase to estimated farm labor costs between $387 million and $622 million annually. Year NY Minimum Wage NY Hired Ag Workers 4 Avg. Wage Difference 2005 $ 6.00 $ % 2006 $ 6.75 $ % 2007 $ 7.15 $ % 2008 $ 7.15 $ % 2009 $ 7.15 $ % 2010 $ 7.25 $ % 2011 $ 7.25 $ % 2012 $ 7.25 $ % 2013 $ 7.25 $ % 2014 $ 8.00 $ % 2015 $ 8.75 $ % Table 1: Comparisons of NYS Minimum Wage Increase to NYS Hired Agricultural Workers, USDA - NASS data available up to year 2010 for New York farm labor. Wages/hour for are estimates. After 2010, USDA - NASS data available for Northeast Region 1, which includes both New York and New England, combined up to The estimated values in Table 1 are based on a 3.5% average increase year-over-year which closely tracks the USDA- NASS Northeast Region 1 values. Farm Credit East Page 4

5 Impact on Farm Net Income When considered on a net farm income basis, the implications of changes in labor costs become more apparent. Net income is the amount farm families have available to pay their own living expenses, repay debt and reinvest in new equipment, buildings and livestock. As noted previously, most farms in New York do not hire agricultural employees, so the burden of the increase will fall on the approximately 10,000 farms which have hired agricultural workers, according to the Census of Agriculture. Net Farm Income Value ($1,000) New York State Total $ 1,216,800 Farms with Hired Ag Workers Estimate Estimate of net farm income with 50.2% increase in labor costs. Estimate of net farm income with 80.6% increase in labor costs. $ 1,143,075 $ 829,617 $ 595,148 Table 2: Estimated Net Income of Farms with Hired Labor We estimate farms with hired agricultural workers have a net income of $1.14 billion. 5 If the minimum wage is raised to $15.00, farms with hired agricultural workers could see a reduction in net income due to the projected increase in labor costs as shown in Table 2. A 50.2 percent increase in agricultural labor costs would lead to a 31.8 percent reduction in farm income, while an 80.6 percent increase in labor costs would result in a 51.1 percent reduction in farm income. New York labor represents 14.2 percent of total agricultural sales, according to the 2012 Census of Agriculture, ranking it 14th out of the 50 states. New York would climb into the top ten states for highest labor cost as a percent of sales, to a level of between 21.4 percent and 25.7 percent as they relate to these two scenarios. Overall, New York s total labor costs would increase to between $1.16 and $1.39 billion based on historical data. See Figure 3 in the appendix. Summary: Total labor costs in New York are currently 63 percent of net cash farm income. Total labor costs in the U.S. are currently 36 percent of net cash farm income. A 50 percent increase in New York labor costs would reduce overall net cash farm income by 31.8 percent. An 81 percent increase in New York labor costs would reduce overall net cash farm income by 51.1 percent. Farm Credit East Knowledge Exchange program Assumption made that the percent of income from farms with hired workers is proportional to all farms in each of the Census of Agriculture s sales categories. Farm Credit East Page 5

6 FarmCreditEast.com $1,600,000 $1,400,000 $1,200,000 NYS Labor Costs $1,158,464 $1,392,933 $1,000 $1,000,000 $800,000 $600,000 $610,492 $771, , ,148 $400,000 $200,000 $ % increase 80.6% increase Labor Cost Net Income Figure 1: New York State Historical and Projected Labor Cost, 2012 Census of Agriculture, USDA New York State Number of Hired Workers Number of Workers 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000-41,198 43,347 35,690 33,796 24,539 23,993 27,148 20, Reported only Workers Working 150 days Reported only Workers Working 150 days Figure 2: Report of Full-Time and Part-Time Hired Labor, 2012 Census of Agriculture, USDA Farm Credit East Page 6

7 Ranking Year State Sales of Ag Products Total Labor Cost Total Labor as % of Sales # of Farms with Sales # of Farms with Contract Labor # of Farms with Hired Labor Hawaii $661,347,000 $291,525, % 7,000 1,066 1, Massachusetts $492,211,000 $185,285, % 7, , Rhode Island $59,652,000 $21,144, % 1, Alaska $58,925,000 $20,365, % Connecticut $550,620,000 $183,077, % 5, , New Hampshire $190,907,000 $57,110, % 4, , New Jersey $1,006,936,000 $288,838, % 9, ,704 S2 New York $5,415,125,000 $1,392,933, % 35,537 2,535 10, Florida $7,701,532,000 $1,836,625, % 47,740 7,234 13, California $42,627,472,000 $9,255,985, % 77,857 25,067 33,955 S1 New York $5,415,125,000 $1,158,464, % 35,537 2,535 10, Washington $9,120,749,000 $1,842,492, % 37,249 3,669 11, Oregon $4,883,674,000 $984,607, % 35,439 5,056 10, Maine $763,062,000 $150,426, % 8, , Arizona $3,732,113,000 $557,200, % 20,005 1,808 4, New York $5,415,125,000 $771,281, % 35,537 2,535 10, Vermont $776,105,000 $102,382, % 7, , Nevada $764,144,000 $91,988, % 4, , New Mexico $2,550,147,000 $289,362, % 24,721 2,664 5, Utah $1,816,147,000 $191,436, % 18,027 1,512 4, Virginia $3,753,287,000 $395,124, % 46,030 3,920 12, Pennsylvania $7,400,781,000 $737,757, % 59,309 3,159 14, Michigan $8,678,050,000 $816,392, % 52,194 3,906 13, Kentucky $5,067,334,000 $453,692, % 77,064 7,683 19, Wyoming $1,689,416,000 $150,110, % 11,736 1,810 3, South Carolina $3,040,069,000 $265,417, % 25,266 1,929 5, Maryland $2,271,397,000 $195,555, % 12, , Tennessee $3,611,037,000 $306,407, % 68,050 4,834 15, Idaho $7,801,446,000 $661,268, % 24,816 3,089 7, Wisconsin $11,744,476,000 $920,230, % 69,754 3,597 18, Louisiana $3,809,401,000 $290,205, % 28,093 2,860 7, Texas $25,375,581,000 $1,906,647, % 248,809 36,840 56, North Carolina $12,588,142,000 $914,091, % 50,218 5,677 14, Colorado $7,780,874,000 $537,645, % 36,180 4,738 9, Montana $4,230,083,000 $279,032, % 28,008 3,084 7, West Virginia $806,775,000 $51,483, % 21, , Georgia $9,255,125,000 $540,032, % 42,257 4,684 12, Ohio $10,064,085,000 $580,547, % 75,462 4,315 17, Oklahoma $7,129,584,000 $372,780, % 80,245 8,971 18, Missouri $9,164,886,000 $461,922, % 99,171 7,575 20, Mississippi $6,441,025,000 $308,021, % 38,076 3,373 10, Alabama $5,571,173,000 $259,359, % 43,223 4,028 11, Delaware $1,274,014,000 $56,454, % 2, Indiana $11,210,818,000 $487,409, % 58,695 3,528 14, Arkansas $9,775,758,000 $391,891, % 45,071 4,767 11, Illinois $17,187,052,000 $632,451, % 75,087 3,796 20, Minnesota $21,280,184,000 $746,380, % 74,542 4,418 22, Kansas $18,460,564,000 $597,923, % 61,773 6,346 16, South Dakota $10,170,227,000 $301,623, % 31,989 2,708 9, North Dakota $10,950,680,000 $314,312, % 30,961 2,143 9, Nebraska $23,068,756,000 $629,564, % 49,969 5,576 17, Iowa $30,821,532,000 $777,805, % 88,637 6,634 27,906 Figure 3: Applied are the New York State increased labor cost scenarios: S percent increase in labor costs; S2 is 80.6 percent increase in labor costs, 2012 Census of Agriculture, USDA Farm Credit East Page 7