United States 

Department of 

Agriculture

Economic

Research

Service

Steven Zahniser, Tom Hertz, Peter Dixon, 

and Maureen Rimmer

The Potential Impact of Changes 

in Immigration Policy on U.S. 

Agriculture and the Market for 

Hired Farm Labor

A Simulation Analysis

Economic 

Research 

Report 

Number 135

May 2012
www.ers.usda.gov

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Recommended citation format for this publication:

Zahniser, Steven, Tom Hertz, Peter Dixon, and Maureen Rimmer. The 

Potential Impact of Changes in Immigration Policy on U.S. Agriculture and 

the Market for Hired Farm Labor: A Simulation Analysis, ERR-135, U.S. 

Department of Agriculture, Economic Research Service, May 2012.
United States

Department

of Agriculture

www.ers.usda.gov

A Report from the Economic Research Service

Abstract

Large shifts in the supply of foreign-born, hired farm labor resulting from substantial 

changes in U.S. immigration laws or policies could have signifi cant economic implications. 

A computable general equilibrium (CGE) model of the U.S. economy is used to evaluate 

how changes in the supply of foreign-born labor might affect all sectors of the economy, 

including agriculture. Two scenarios are considered: an increase in the number of temporary nonimmigrant, foreign-born farmworkers, such as those admitted under the H-2A 

Temporary Agricultural Program, and a decrease in the number of unauthorized workers in 

all sectors of the economy. Longrun economic outcomes for agricultural output and exports, 

wages and employment levels, and national income accruing to U.S.-born and foreignborn, permanent resident workers in these two scenarios are compared with a base forecast 

refl ecting current immigration laws and policies.

Keywords: farm labor, farmworkers, immigrant, immigration, H-2A program, computable 

general equilibrium (CGE) model, agriculture, authorized, unauthorized

Acknowledgments

This report was produced under cooperative agreement 58-3000-7-0135 between USDA’s 

Economic Research Service (ERS) and Monash University (Australia). The authors thank 

the many people who made the report’s production and completion possible. William 

Kandel (formerly with ERS) modifi ed the data underlying the model used in the report to 

refl ect more recent wage and employment data. Stephen Devadoss (University of Idaho), 

Philip Martin (University of California at Davis), Mark Gehlhar and Agapi Somwaru (both 

formerly with ERS), and Linda Calvin, Robert Gibbs, Rip Landes, Mary Anne Normile, 

Greg Pompelli, Donna Roberts, and Stephen Vogel (all from ERS) provided numerous 

helpful comments and suggestions. Participants in a September 2010 ERS seminar and 

in an invited paper session at the 2011 Joint Annual Meeting of the Agricultural and 

Applied Economics Association (AAEA) and the Northeastern Agricultural and Resource 

Economics Association (NAREA) also provided useful feedback. Angela Anderson 

provided editorial support, and Curtia Taylor provided design and production support.

Steven Zahniser, zahniser@ers.usda.gov

Tom Hertz, thertz@ers.usda.gov

Peter Dixon

Maureen Rimmer

The Potential Impact of Changes in 

Immigration Policy on U.S. Agriculture 

and the Market for Hired Farm Labor: 

A Simulation Analysis

Economic 

Research 

Report

Number 135

May 2012
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Contents

Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Recent Legislative Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Research on Previous Immigration Policy Changes. . . . . . . . . . . . . . . . . 6

Research Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Simulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

 Effects on the Labor Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

 Effects on Agricultural Output and Exports. . . . . . . . . . . . . . . . . . . . . . 19

 Economy-Wide Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Research Caveats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Appendix: The USAGE Model and Its Application 

to Immigration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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Summary

What Is the Issue?

This report explores the possible economic implications of large shifts in the 

supply of foreign-born, hired farm labor that could result from substantial 

changes in U.S. immigration laws or policies. Hired labor (including contract 

labor) is an important input to U.S. agricultural production, accounting for 

about 17 percent of variable production expenses and about 40 percent of 

such expenses for fruits, vegetables, and nursery products. Over the past 15 

years, roughly half of the hired laborers employed in U.S. crop agriculture 

have lacked the immigration status needed to work legally in the United 

States. Thus, changes in immigration laws or policies could lead to markedly 

different economic outcomes in the agricultural sector and the market for 

hired farm labor. The same is generally true for other economic sectors that 

rely on large numbers of unauthorized workers.

To examine how large changes in the supply of foreign-born labor would 

affect U.S. agriculture, we considered two hypothetical scenarios: (1) a 

156,000-person increase in the employment of temporary nonimmigrant 

agricultural workers, such as those now participating in the H-2A Temporary 

Agricultural Program; and (2) a 5.8-million-person decrease in the total 

number of unauthorized workers in all sectors of the economy, including agriculture. These scenarios (15-year projections) are not intended to precisely 

represent the effects of any specifi c policy proposals. Instead, they provide 

an opportunity to consider the economic impacts of sizable changes in the 

supply of foreign-born farm labor.

What Did the Study Find?

The expanded employment of temporary nonimmigrant agricultural workers 

would lead to a longrun relative increase in agricultural output and exports. 

The increases are generally larger in labor-intensive sectors, such as fruits, 

tree nuts, vegetables, and nursery products. By year 15 of the increased farm 

labor supply scenario, these four sectors experience a 1.1- to 2.0-percent 

increase in output and a 1.7- to 3.2-percent increase in exports, relative to 

the base forecast. Less labor-intensive sectors, such as grains, oilseeds, and 

livestock production, tend to have smaller increases, ranging from 0.1 to 1.5 

percent for output and from 0.2 to 2.6 percent for exports. While agricultural 

output and exports would increase, the real wages of agricultural workers 

would decrease by 4.4 percent in the long run, relative to the forecasted 

wage with no policy-induced labor supply change. Increased employment of 

temporary nonimmigrant agricultural workers would have little effect on the 

nonagricultural economy, since hired farmworkers make up a small share of 

the U.S. workforce.

By contrast, a large reduction in the number of unauthorized workers in all 

sectors of the U.S. economy would lead to a long-run reduction in output 

and exports in both agriculture and the broader economy, relative to forecasted levels with no policy-induced change in unauthorized labor supply. 

Fruits, tree nuts, vegetables, and nursery production are again among the 

most affected sectors, with longrun relative declines from 2.0 to 5.4 percent 
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in output and from 2.5 to 9.3 percent in exports, depending on the modeling 

assumptions. These effects tend to be smaller in other, less labor-intensive 

parts of agriculture—a 1.6- to 4.9-percent decrease in output and a 0.2- to 

7.4-percent decrease in exports. Real agricultural wages would rise, on 

average, from 3.9 to 9.9 percent in the long run, relative to the forecasted 

wage with no policy-induced labor supply reduction. Since unauthorized 

farmworkers would be in much shorter supply, their wages would increase 

from 13.6 to 39.8 percent.

Decreasing the size of the unauthorized labor force would reduce the aggregate level of economic production and slightly lower the income that accrues 

to complementary, U.S.-owned factors of production, such as capital and 

skilled labor. The lost income would be only partially offset by higher real 

wages for U.S.-born and foreign-born, permanent resident workers employed 

as hired farm laborers or in other lower paying occupations where unauthorized workers were formerly more prevalent. In the long run, overall gross 

national product accruing to the U.S.-born and to foreign-born, permanent 

residents would fall by about 1 percent, compared with the base forecast. 

The number of U.S.-born and other permanent resident farmworkers would 

increase, but not by an amount suffi cient to fully offset the decrease in the 

employment of unauthorized farmworkers. Among the additional U.S.-born 

and other permanent resident farmworkers are some people who lost (slightly) 

higher paying jobs as the economy contracted due to the decreased supply 

of unauthorized labor in all sectors of the economy. This downward shift in 

occupational composition reduces the average real wage of all U.S.-born and 

other permanent resident workers—agricultural and nonagricultural—from 

0.3 to 0.6 percent compared with the base forecast, even as real wages rise in 

many lower paying occupations.

How Was the Study Conducted?

The authors employed a modifi ed version of the U.S. Applied General 

Equilibrium (USAGE) Model, a recursively dynamic, computable general 

equilibrium (CGE) model of the U.S. economy developed by Peter Dixon 

and Maureen Rimmer of Monash University in Australia and adapted to the 

U.S. context in collaboration with the U.S. International Trade Commission 

(USITC). Data for the base year (2005) came from the U.S. Department of 

Commerce’s Bureau of Economic Analysis (BEA). Model structure, extensions, and data sources are summarized in the main text of the report and 

discussed in greater detail in the appendix.

The model generated a set of 15-year projections for three scenarios:

• Base forecast: Current laws, programs, policies, and trends are assumed 

to remain in effect, generating a baseline against which the alternative 

scenarios will be evaluated.

• Simulation 1: The quantity of labor supplied annually to agriculture by 

people without the U.S. immigration status of permanent residency is 

assumed to increase by about 30,000 workers in year 1, with the additional number of temporary nonimmigrant agricultural workers rising 

to about 150,000 in year 15. By comparison, 68,088 positions in the 

H-2A program (the current avenue by which nonimmigrant workers can 
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be employed in U.S. agriculture on a temporary basis) were certifi ed in 

fi scal year (FY) 2011.

• Simulation 2: The total number of unauthorized workers in all sectors 

of the economy, both agricultural and nonagricultural, is assumed to 

decrease by 5.8 million by year 15 of the forecast, a 40-percent reduction 

compared with the base forecast. This change corresponds to about 3 

percent of the projected size of the total U.S. workforce in year 15.
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Introduction1

Large shifts in the supply of foreign-born farm labor, such as those that might 

result from substantial changes to U.S. immigration laws or policies, could 

have signifi cant effects on production costs in U.S. agriculture. Hired labor 

(including contract labor) accounted for about 17 percent of the sector’s variable production expenses and even higher proportions in more labor-intensive 

sectors, such as vegetables (35 percent), nursery products (46 percent), and 

fruits (48 percent), according to 2006-10 Agricultural Resource Management 

Survey (ARMS) data (fi g. 1).2

Many workers employed by U.S. agriculture lack the immigration status 

needed to work legally in the country. According to the U.S. Department of 

Labor’s National Agricultural Workers Survey (NAWS), about half of the 

hired workers in U.S. crop agriculture over the past 15 years were unauthorized, with most of these workers coming from Mexico (Carroll et al., 2011).3

Farmworkers, however, accounted for 4 percent of the 8.3 million unauthorized immigrants in the U.S. labor force as of March 2008, according to estimates by Passel and Cohn (2009). Many of the unauthorized workers 

employed outside of agriculture worked in construction, leisure and hospitality, cleaning and maintenance, and other service industries.4

The Federal Government’s H-2A Temporary Agricultural Program “establishes a means for agricultural employers who anticipate a shortage of 

domestic workers to bring nonimmigrant foreign workers to the U.S. to 

perform agricultural labor or services of a temporary or seasonal nature” 

(U.S. Department of Labor, Employment and Training Administration, 

2009). Although the H-2A program is the only program of its type currently 

in effect for U.S. agriculture, participation is customarily low relative to the 

size of the unauthorized workforce. In fi scal year (FY) 2011, determinations 

were issued for 7,361 applications to the H-2A program. Of these, 7,000 

applications were certifi ed. Most employers requested multiple workers, as 

the 7,000 certifi ed applications corresponded to 68,088 positions in the agricultural workforce (U.S. Department of Labor, Employment and Training 

Administration, 2012). Over the past 5 fi scal years, the number of positions 

certifi ed has fl uctuated between 68,088 and 86,100 (U.S. Department of 

Labor, Employment and Training Administration, 2012, 2010).

H-2A employment represented less than 10 percent of the U.S. farm labor 

force during 2007-11, compared with the average annual number of hired 

farm and service workers in agriculture as tallied by USDA’s National 

Agricultural Statistics Service (2007-11). The limited use of the H-2A 

program has been attributed to a variety of causes. Dairy, livestock, and 

nursery operations, which tend to need year-round labor, are largely 

precluded from participating since the program is only for temporary or 

seasonal workers. In addition, prospective employers may be discouraged 

by some program requirements, such as providing housing to H-2A workers 

and paying them the highest of the Federal or State minimum wage, the 

prevailing hourly or piece rate, the agreed-upon collective bargaining rate, or 

the adverse effect wage rate (AEWR). AEWRs are “the minimum wage rates 

the [U.S. Department of Labor] has determined must be offered and paid 

by employers to H-2A workers and workers in corresponding employment 

1In this report, we use the following 

terminology to describe U.S. immigration status. “U.S.-born” refers to people 

born in the United States. “Foreignborn, permanent resident” refers to 

people born outside the United States 

who have the offi cial U.S. immigration status of permanent resident and, 

thus, are legally allowed to work in 

this country. We sometimes use the 

term “authorized” to refer to these two 

groups of people. “Foreign-born, not 

permanent resident” refers to people 

born outside the United States who 

lack the status of permanent residency. 

Most of the people in this group are 

not authorized to work legally in the 

United States, and we refer to them as 

“unauthorized.” However, temporary, 

nonimmigrant workers, such as those 

in the H-2A Temporary Agricultural 

Program, also fall into the category of 

foreign-born, not permanent resident. 

These workers are authorized to work in 

the United States on a temporary basis 

but do not have the immigration status 

of a permanent resident. 

2Wages for fi eld and livestock workers 

in October 2011 averaged $10.57 per 

hour, not counting meals, housing, 

and other benefi ts (USDA, National 

Agricultural Statistics Service, 2011).

3Similar, survey-based information on 

legal immigration status was not available for hired workers in the livestock 

sector. Foreign-born persons—authorized and unauthorized—accounted for 

a large share of the workforce in U.S. 

agriculture and related industries: about 

71 percent of workers in crop agriculture 

during 2007-09 (Carroll et al., 2011), 

41 percent of workers on dairy farms 

in 2008 (Rosson et al., 2009), and 36 

percent of workers at meat processing 

plants in 2008 (Kandel, 2011).

4Passel and Cohn (2011) estimated 

that 11.2 million unauthorized immigrants were living in the United States 

as of March 2010 and that 8.0 million 

of these immigrants were in the U.S. 

labor force.
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for a particular occupation and area so that the wages of similarly employed 

U.S. workers will not be adversely affected” (U.S. Department of Labor, 

Employment and Training Administration, 2011b). In general, the AEWR for 

each region (or State) “is equal to the annual weighted average hourly wage 

rate for fi eld and livestock workers (combined) for the region, as published 

annually by the U.S. Department of Agriculture (USDA)” (U.S. Department 

of Labor, Employment and Training Administration, 2011b). For 2012, the 

AEWRs range from $9.30 per hour (Arkansas) to $12.26 per hour (Hawaii) 

and average $10.40 per hour for the 50 States (U.S. Department of Labor, 

Employment and Training Administration, 2011a).

Given the desire of many Americans to control illegal immigration, the 

limited use of the H-2A program and the continuing practice of employing 

unauthorized farmworkers combine to make addressing the issue of unauthorized farmworkers one of the more important agricultural policy challenges of the early 21st century. As discussed below, a number of relevant 

legislative proposals are currently being debated, some that would increase 

the availability of temporary nonimmigrant agricultural labor and others that 

would make it more diffi cult to hire unauthorized workers. We considered the 

economic implications of two hypothetical scenarios: 

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 2006-10 Agricultural Resource 

Management Survey data.

Figure 1

Labor expenses as a percentage of total variable expenses in U.S. agriculture, by production 

specialization, 2006-10 average

5

6

7

8

9

9

10

10

12

12

14

15

16

17

17

26

35

46

48

0 5 10 15 20 25 30 35 40 45 50

Corn

Soybean

General cash grain

Cattle

Wheat

Sorghum

Hogs

Rice

Cotton

Peanuts

Dairy

Other livestock

Poultry

All farms

Other crops

Tobacco

Vegetables

Nursery products

Fruits

Percent
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• An increase in the employment of temporary nonimmigrant agricultural 

workers, such as those admitted under the current H-2A program; and 

• A decrease in the number of unauthorized workers available to work in 

all occupations (agricultural and nonagricultural). 

These scenarios were not intended to represent the outcomes of any specifi c 

policy proposals. Instead, they provided an opportunity to consider the 

economic impacts of signifi cant changes in the supply of foreign-born labor.

To conduct this analysis, we employed a modifi ed version of the U.S. Applied 

General Equilibrium (USAGE) Model, a recursively dynamic, computable 

general equilibrium (CGE) model of the U.S. economy. This model offered 

several important advantages over other methods that addressed similar 

questions in the past. First, it treated authorized and unauthorized labor as 

separate factors of production and modeled employers’ ability to substitute 

between them. Second, unlike partial equilibrium models, the USAGE Model 

can estimate the impact of large changes in unauthorized labor supply on 

macroeconomic outcomes, such as national income and the exchange rate, 

which in turn affect domestic and foreign demand for agricultural output.
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Recent Legislative Proposals

Over the past decade, the U.S. Congress has debated a variety of changes 

to U.S. immigration law as it relates to foreign-born farmworkers. Some of 

these proposals would create additional opportunities for persons from other 

countries to work legally in U.S. agriculture, while others propose different 

approaches to the enforcement of existing U.S. immigration restrictions.

The Agricultural Job Opportunity Benefi ts and Security Act (AgJOBS)—a 

compromise negotiated by worker advocates and farm employers in 

December 2000—is an example of one proposal that would create additional 

opportunities for foreign-born farmworkers. The AgJOBS proposal was last 

introduced as a standalone bill in the 111th Congress but not enacted into 

law. Currently, AgJOBS is contained within the Comprehensive Immigration 

Reform Act of 2011, a bill introduced in the 112th Congress.

Among its main provisions, AgJOBS would grant a temporary nonimmigrant 

visa to up to 1.35 million people who could document a certain amount of 

past experience as U.S. farmworkers and provide them and their families with 

the opportunity to apply for permanent residency status if they performed 

additional farmwork in the United States. In addition, AgJOBS would modify 

some aspects of the H-2A program. For instance, it would allow employers 

to make cash housing assistance payments in some cases instead of physically providing worker housing, and it would freeze the AEWR in each State 

at its level as of January 1, 2011. If the U.S. Congress does not establish a 

new wage standard for the H-2A program within 3 years of the bill’s enactment, then the AEWR would rise at the same rate as the 2-year average of the 

consumer price index, but not by more than 4 percent per year.

Measures intended to enforce existing U.S. immigration restrictions using 

different methods also have been proposed. The Legal Workforce Act (H.R. 

2885), also introduced in the 112th Congress, would require all employers—

agricultural and nonagricultural—to use E-Verify to confi rm the employment eligibility of their new hires. E-Verify is an Internet-based system 

operated by the U.S. Department of Homeland Security in partnership with 

the Social Security Administration that compares information reported by 

the employees on their Form I-9 (Employment Eligibility Verifi cation) with 

Government records. Currently, the Federal Government requires the use 

of E-Verify for all Federal contractors and most subcontractors but does not 

mandate its use by all private-sector employers. Several States do require 

E-Verify, however, including Arizona, Alabama, Mississippi, and South 

Carolina. Utah requires that all private-sector employers use one of several 

methods to confi rm employment eligibility, with E-Verify being one of the 

specifi ed options; Georgia will require similar verifi cation by 2013 for businesses with 11 or more employees.

Within the E-Verify process, employees whose Form I-9 information does 

not match Government records receive a “Tentative Nonconfi rmation.” Such 

employees have the right to challenge this result within 8 workdays, and 

while the challenge is underway, employers are not allowed to dismiss the 

employee, reduce the employee’s work hours, or limit the employee’s training. 

If the information discrepancies are not resolved, the employee receives a 

“Final Nonconfi rmation” from E-Verify, and the employer must dismiss the 
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employee. At present, 96.9 percent of employees whose employment eligibility was checked using E-Verify were confi rmed almost immediately (U.S. 

Department of Homeland Security, 2011a).

The proposed Legal Workforce Act would give agricultural employers 36 

months to comply with the E-Verify mandate. Some farm groups, however, 

are concerned that mandating use of E-Verify without creating some sort of 

new program for foreign-born agricultural workers would raise labor costs 

sharply, adversely affecting many farm employers.
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Research on Previous Immigration 

Policy Changes5

The termination of the Bracero Program in 1964, the passage of the 

Immigration Reform and Control Act of 1986 (IRCA), and contemporary 

interest in immigration have prompted several waves of research on the 

role of foreign-born labor in the U.S. economy. This research provided key 

insights into the economics of hired farm labor in the United States and 

supported the modeling work presented here.

The Bracero Program, in effect from 1942 to 1964, evolved from a series of 

bilateral agreements between the U.S. and Mexican Governments to become 

the largest U.S. agricultural guestworker program to date. In Spanish, the 

word “bracero” comes from “brazo,” the word for arm, and refers to a day 

laborer or strong-armed individual. The Bracero Program recruited millions 

of Mexicans to work on U.S. farms; participation peaked in 1956 at 445,000 

workers. In a study of seven U.S. States that were the destination for about 90 

percent of all braceros, Morgan and Gardener (1982) found that the program 

boosted total farm employment by 26 percent and reduced agricultural wages 

by 9 percent.

Another study of the Bracero Program (Wise, 1974) provided early estimates 

of the responsiveness of U.S. farmworkers to wage changes. Growers argued 

that U.S.-born workers would not accept the jobs formerly held by braceros at 

any reasonable wage, while then Secretary of Labor W. Willard Wirtz held 

that more U.S. labor would be forthcoming if growers paid higher wages. In a 

study of California’s strawberry and melon sectors, Wise concluded that the 

elasticity of supply of U.S.-born farm labor was roughly 3—meaning that a 

1-percent increase in wages would lead to a 3-percent increase in the availability of U.S.-born workers.6 He estimated that, without the braceros, 

employment of U.S.-born farmworkers in the California strawberry sector 

would have been 51 percent higher and wages would have been 12 percent 

higher; in the melon sector, employment and wages would have been 261 

percent and 67 percent higher, respectively.

When the Bracero Program ended, however, farmers did not simply switch 

to an entirely U.S.-born labor force of the same size. Instead, the employment of unauthorized farmworkers increased, wages rose, and advances in 

mechanization greatly reduced the labor requirements for some crops. Martin 

(1998) noted: “The removal of unauthorized or guest workers from the farm 

workforce rarely prompts U.S. workers to replace them. The more common 

response is for growers to demand fewer workers, often by mechanizing 

hand-harvest tasks.” The development of the tomato harvester, along with 

the development of uniformly ripening tomatoes, for example, meant that the 

tomatoes could be harvested in a single pass through the fi eld using much 

less labor. Martin and Calvin (2010) summarized the lessons learned in this 

industry as they apply to the current debate about how labor-intensive agriculture would adjust to higher labor costs:

“First, most analysts conclude that farmers will mechanize or reduce 

production before raising wages high enough to induce U.S. farm 

workers into the fi elds, highlighting the fact that the major responses to 

5The literature review of Levine 

(2009) served as a starting point for our 

own review.

6The elasticity of labor supply is 

the percent increase in the number of 

people willing to work that would be 

elicited by a 1-percent increase in the 

real wage. An “inelastic” response 

means an elasticity of less than 1. A 

situation in which no additional U.S. 

workers would be forthcoming at any 

wage corresponds to an elasticity of 

zero.
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rising wages in the farm labor market are on the demand rather than the 

supply side of the labor (Huffman, 2007; Martin, 2009). Second, those 

closest to the industry were unable to predict the speed of the adjustments 

that occurred. Third, the government played a critical role in speeding 

mechanization via research funding” (Martin and Calvin, 2010).

IRCA provided an opportunity for unauthorized immigrants to gain temporary legal residency in the United States and then to apply for permanent 

residency status by demonstrating that she or he had either lived in the United 

States continuously since before January 1, 1982, or worked in U.S. agriculture for at least 90 days in the year prior to May 1986. Roughly 2.7 million 

people legalized their immigration status by these two channels (Rytina, 

2002).

Two major concerns about IRCA with respect to hired farm labor were that 

the legalization of previously unauthorized farmworkers would increase their 

mobility in the labor market, leading to an exodus out of agriculture, and that 

IRCA’s enforcement provisions would limit access to new immigrant labor. 

Studies that addressed this question include Duffi eld (1990), Gunter et al. 

(1992), and Duffi eld and Coltrane (1992). These papers offered a review of 

published estimates of labor supply and demand elasticities for the U.S. farm 

labor market and presented new estimates of these parameters. Longrun labor 

supply elasticities ranged between 0.71 and 1.55, while the longrun elasticity 

of labor demand was observed to be rising over time (in absolute terms); 

Duffi eld and Coltrane’s preferred estimate of this latter parameter, based on 

data from 1948-89, indicates that a 1-percent increase in the real wage leads 

to a 3.14-percent reduction in the quantity of labor demanded in the long run. 

As we will show, these elasticities are generally consistent with our simulation results.

Gunter et al. considered a scenario whereby IRCA caused labor supplied to 

agriculture to fall by 10 percent and then estimated the consequences for 

wages, employment, and output in fruit and vegetable production. Their 

model looked at longrun effects, taking into account substitution between 

capital and labor, changes in output demand that would occur if higher costs 

led to higher output prices, and the elasticity of labor supply (treating all 

hired labor as a single input, regardless of nationality). They found that a 

10-percent reduction in labor supply raised wages by 5.1 percent, reduced 

agricultural employment by 6.2 percent, and reduced output by 3.4 percent.7

They then refi ned these estimates for a set of 11 individual commodities and 

found that wages rose by 4.4-5.1 percent, depending on the crop; employment 

fell by 4.0-10.9 percent; prices rose by 0.2-2.2 percent; and farm output fell 

by 0.4-4.3 percent. 

Gunter et al. concluded that “only minor changes in fruit and vegetable 

production would result from an IRCA-induced labor supply decrease.” In 

particular, total fruit and vegetable output was still projected to grow by 12.1 

percent over 5 years, compared with 16.0 percent in the absence of the labor 

shock, because they forecasted that consumer demand for fruits and vegetables would continue to grow at the same rate as during 1983-87.

The decrease in farm labor availability contemplated by Gunter et al. never 

materialized, as illegal immigration continued and even accelerated. 

7These numbers were calculated 

from the results reported in table 3 of 

Gunter et al. and refl ected the difference between projected outcomes under 

two scenarios: one involved steady 

consumer demand growth with no labor 

supply shock, and the other assumed the 

same rate of demand growth but also 

reduced labor supply by 10 percent.
8

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Although IRCA included penalties for farmers who “knowingly” hired unauthorized workers, it did not require farmers to verify the authenticity of the 

documents their workers presented to establish their legal status (Martin and 

Calvin, 2010). The subsequent proliferation of false documents drew congressional attention in 1996, resulting in the development of systems that allow 

employers to check the authenticity of documents provided by newly hired 

workers. These pilot projects have since evolved into E-Verify.8

The most recent wave of research on unauthorized farmworkers includes the 

work of Martin and Calvin, already mentioned, and analyses by Devadoss 

and Luckstead (2008), Rosson, et al. (2009a), the American Farm Bureau 

Federation’s Economic Analysis Team (2006), and Ruark and Moinuddin 

(2011). In their study of California vegetable production, Devadoss and 

Luckstead argued that there was virtually no displacement of domestic 

workers by foreign-born workers: “[T]he addition of one new immigrant 

displaces only 0.0123 domestic workers, and wage reduction is inconsequential.” They noted that, since only about 5 percent of workers in California 

vegetables were U.S.-born, even large percentage increases in their employment would correspond to small absolute numbers. However, since foreignborn workers accounted for roughly 95 percent of the workforce during the 

period that Devadoss and Luckstead studied, it is unlikely that the presence of 

such workers had only inconsequential effects on wages. A simple static 

shortrun model with the labor supply elasticity set at 0.5 and the demand elasticity set at 2 (in absolute value), which were the parameters employed by 

Devadoss and Luckstead, predicts that a 10-percent increase in total labor 

supply would lead to a 4-percent reduction in wages and an 8-percent 

increase in total employment.9

Most research supports the conclusion that the elasticity of labor supply that 

governs the response of U.S.-born farmworkers is well below infi nity. Hence, 

large reductions in the size of the foreign-born workforce would not be offset 

simply by equally large increases in the employment of U.S.-born farmworkers. Instead, the reductions would lead to some combination of higher 

wages, increased employment of U.S.-born and other authorized workers, 

reduced farm output, and, in all likelihood, advances in mechanization over 

the long run.

Rosson et al. (2009) illustrated the importance of foreign-born workers to 

the U.S. dairy industry through the use of an input-output model of the U.S. 

economy. In a simulation whereby the number of foreign-born workers (both 

authorized and unauthorized) employed in the dairy sector was reduced by 

50 percent, the authors found that U.S. milk production decreased by 7.9 

percent. This study did not consider, however, the extent to which departing 

foreign-born workers could be replaced by further mechanization, U.S.-born 

workers, or some combination of the two. Indeed, the study was grounded 

in the assumption that the quantity of U.S.-born labor for the dairy industry 

remained constant.

The American Farm Bureau Federation’s Economic Analysis Team (2006) 

considered a scenario whereby U.S. agriculture no longer had access to 

“migrant workers,” who were defi ned as “foreign-born workers who travel to 

the U.S. for employment in the agricultural sector.” This study also made no 

distinction between authorized and unauthorized workers. Based on a simple 

8The U.S. Department of Homeland 

Security, Citizenship and Immigration 

Services (2011b) offers a chronological 

summary of the major milestones in the 

development of E-Verify.

9The change in the equilibrium wage 

in response to a supply shift is given 

by: %∆W = -%∆LS / (ε+γ) where W 

is the wage, Ls

 is labor supply, ε is the 

elasticity of labor supply, and γ is the 

elasticity of labor demand. The change 

in employment is then: %∆W*γ.
9

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comparison of agricultural and nonagricultural wage data, the authors 

concluded that in such a scenario, the wages of hired farmworkers would 

need to rise by 16-47 percent for agricultural employers to attract replacement 

workers from other occupations requiring similar skills. The authors then 

assumed that about 10-20 percent of fi nancially vulnerable growers of fruits, 

vegetables, and nursery products would be forced to exit the sector because of 

this wage increase, without a clear explanation of how this percentage was 

obtained. When the authors conducted their study, about 10 percent of all 

U.S. fruit, vegetable, and nursery product growers were classifi ed as fi nancially vulnerable, according to 2003 ARMS data, so the number of growers 

assumed to depart the sector would correspond to about 1-2 percent of all 

fruit, vegetable, and nursery product growers.10 Total U.S. agricultural 

output was projected to fall by approximately 3-6 percent in the long run.

Similarly, Ruark and Moinuddin (2011) imagined replacing unauthorized 

farmworkers with U.S.-born workers at higher wages and then calculated the 

implications of this increase in labor costs for agricultural profi t margins. 

They concluded that farm profi ts were high enough to absorb the additional 

costs associated with replacing the unauthorized labor force. The authors 

noted that U.S.-born workers earned 18-22 percent more than unauthorized 

workers and assumed that adequate numbers of additional U.S.-born workers 

could be recruited at this wage. This argument, however, rested on the 

assumption that the supply elasticity of U.S.-born labor to farming was nearly 

infi nite: with no change in the wage rate currently offered to U.S.-born 

workers, hundreds of thousands more could be recruited. This assumption is 

contradicted by the empirical evidence cited earlier, implying that Ruark and 

Moinuddin’s estimates of the hypothetical increase in labor costs and its 

effects on farm profi tability and output are too low.11

As mentioned previously, some State Governments have mandated the use 

of E-Verify by private-sector employers; quantitative evaluations of these 

mandates are now emerging. Lofstrom et al. (2011) studied the effects of 

the 2007 Legal Arizona Workers Act (LAWA)—a State law that mandates 

the use of E-Verify by all Arizona employers and imposes sanctions on 

employers who hire unauthorized workers. Lofstrom et al. compared population and employment levels in Arizona before and after the law’s passage 

with those in a group of control States that displayed similar economic trends 

prior to 2007. They found that wage and salary employment of Hispanic 

noncitizens, many of whom were unauthorized, dropped by approximately 

56,000 post-LAWA, but that self-employment by Hispanic noncitizens, either 

as independent contractors or as laborers in the informal sector, increased by 

about 25,000. The authors found no clear evidence that LAWA either hurt or 

benefi tted competing authorized workers. Although results specifi c to agriculture were not reported, these fi ndings suggest that broader mandated use 

of E-Verify by private sector employers could have signifi cant effects on the 

farm labor market.

The fi nal set of studies that we reviewed examined the impact of immigration 

on local labor markets and the economy as a whole but did not look specifi -

cally at agriculture. Longhi et al. (2008) discussed dozens of relevant studies 

with widely varying conclusions; the opposite sides of this debate are exemplifi ed by Borjas and Katz (2007) and Ottaviano and Peri (2008). Borjas and 

Katz found no net effect of immigration between 1980 and 2000 on average 

10ERS classifi es fi nancially vulnerable farms as having negative net cash 

income and a debt-to-asset ratio greater 

than 0.4. ERS’s most recent research on 

the fi nancial outlook for the U.S. farm 

sector (Park et al., 2011) indicated that, 

as of December 31, 2010, 2 percent of 

all U.S. farms were fi nancially vulnerable. This was the lowest level ever 

recorded by ERS. Moreover, most of 

these vulnerable farms were classifi ed 

as residential/lifestyle operations, or 

small family farms (gross farm sales 

less than $250,000), where the operator 

reports a major occupation other than 

farming (Hoppe and Banker, 2010).

11A detailed critique of Ruark and 

Moinuddin appears in Knutson and 

Fisher (2011).
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wages of U.S.-born workers, but they found a strong negative effect for those 

without a high school diploma, whose wages fell by 4.8 percent. By contrast, 

Ottaviano and Peri argued that, on balance, immigrants complement the 

U.S.-born workforce, promoting capital investment and allowing U.S.-born 

workers to fi ll higher paying jobs. They concluded that immigration between 

1990 and 2006 raised average wages of U.S.-born workers by 0.6 percent. 

Strikingly, Ottaviano and Peri found positive wage effects of immigration 

even for the least educated U.S.-born workers. However, they also found that 

new immigrants reduced the wages of previous immigrants by 6 percent.
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Research Methods

We employed a modifi ed version of the U.S. Applied General Equilibrium 

(USAGE) Model, a recursively dynamic, computable general equilibrium 

(CGE) model of the U.S. economy developed by Peter Dixon and Maureen 

Rimmer of Monash University in Australia and adapted to the U.S. context 

in collaboration with the U.S. International Trade Commission (USITC). 

The model’s origins, structure, and data sources are described in detail in the 

appendix. Here, we summarize the model’s key features that must be understood to interpret our results.

A CGE model is “a system of equations that describes an economy as a whole 

and the interactions among its parts” (Burfi sher, 2011). CGE modeling may 

be contrasted with partial equilibrium analyses, which examine markets for 

individual goods, services, or factors of production under the assumption that 

the policy change in question is not large enough to have an appreciable effect 

on the overall economy. When the macroeconomic repercussions of economic 

policy changes cannot be ignored, such as with our decreased unauthorized 

labor supply scenario, CGE modeling is necessary.

At the heart of any CGE model is a social accounting matrix (SAM) that 

describes the monetary fl ows within an economy between buyers and sellers, 

including industries that buy intermediate inputs from each other, and quantifi es the public, private, and foreign sources of demand for national output. For 

our purposes, the key linkages are between the markets for various factors of 

production, between different economic sectors (agricultural and nonagricultural), and between the U.S. economy and the rest of the world.

Three important features of the USAGE Model distinguish it from other 

methods used to address this issue: 

• The model treats authorized and unauthorized labor as distinct factors 

of production and contains a parameter (an elasticity of substitution) that 

determines the willingness of employers to substitute between them. 

In both the Ottaviano/Peri and Borjas/Katz papers, data limitations 

prevented an explicit differentiation between authorized and unauthorized foreign-born workers. The inconsistent results between the two 

studies stemmed from how the researchers treated capital stock adjustments, substitution between workers with varying levels of education 

and experience, and substitution between immigrant and nonimmigrant 

labor. The USAGE Model incorporates Ottaviano and Peri’s estimated 

elasticity of substitution between domestic and foreign-born labor but 

reaches conclusions similar to those of Borjas and Katz with regard to 

the impact of immigration on low-wage U.S.-born workers, including 

farmworkers, because authorized and unauthorized labor are assumed to 

be close substitutes in the model.

• The model also takes into account linkages between agriculture and the 

rest of the U.S. and global economy, allowing us to assess the effect of 

changes in immigration policy on domestic and international demand 

for agricultural output. Most static analyses hold output prices fi xed or, 

as with Gunter et al., assume that output demand grows steadily and is 
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not affected by the policy-induced changes in the supply of unauthorized 

labor. 

• Finally, the model explicitly represents the markets for farm labor, 

capital, land, and output as endogenous variables, unlike Ruark and 

Moinuddin, whose estimated wage changes were imposed exogenously 

and who made the assumption that farm output was unchanged.

The USAGE Model is not the only CGE model that has been used to evaluate 

the economic impacts of changes in the supply of foreign-born labor. For 

instance, a global CGE model of bilateral migration fl ows associated with 

the Global Trade Analysis Project (GTAP) (Walmsley et al., 2007) examined 

the economic gains from relaxing the restrictions of developed countries 

to temporary workers from the developing countries. Unlike the USAGE 

Model, this model has not yet been fully applied to U.S. agriculture, although 

work is underway by Remble and Keeney (2011) to apply the CGE modeling 

approach of Walmsley et al. to determine how an increase in the supply of 

foreign-born workers might offset a decrease in U.S. domestic farm supports.

We began our analysis by using the USAGE Model to generate an economic 

forecast for the 15-year period that followed the base year, which was 2005. 

We will refer to this forecast as the “base forecast.” It represents a prediction of how the economy would evolve under current laws and policies. We 

then implemented the labor supply changes described below and compared 

the resulting scenarios with the base forecast. Model results are expressed as 

percentage differences between the base forecast and the scenarios, and these 

differences are interpreted as the effects of the labor supply changes, which 

are assumed to be the results of unspecifi ed changes in policy. The 15-year 

forecast was long enough to enable the model to achieve a new, long-term 

equilibrium and to express fully the economic effects of the scenarios.

Like many CGE models, the USAGE Model assumes that markets are suffi -

ciently fl exible to ensure that all labor and capital resources are nearly fully 

employed in the long run. This means that the simulations reported here do 

not apply to the current economic environment, in which roughly 8 percent of 

the workforce is unemployed. Instead, they describe a hypothetical, longrun 

situation in which the U.S. economy is much closer to full employment and 

has an unemployment rate of about 5 percent.12

To adapt the USAGE Model to the study of immigration, Dixon and Rimmer 

(2008, 2009) used estimates of unauthorized migration from Van Hook et al. 

(2005) to disaggregate the workforce into three categories based on immigration status:

• U.S.-born: native U.S. citizens;

• Foreign-born, permanent resident: those with permanent U.S. residency 

status and are, thus, legally authorized to work in the United States; and

• Foreign-born, not a permanent resident: those without permanent U.S. 

residency status.

Most people in this third category are not legally authorized to work in the 

United States. For this reason, we sometimes used the term “authorized” to 

refer to people in the fi rst and second categories and “unauthorized” to refer 

12In the short run, the model used 

a dynamic approach to adjust wage 

rates in response to gaps between the 

demand for and supply of different 

types of labor. This permitted some 

deviation from near-full employment. 

We reported only long-run results (15 

years after a signifi cant policy shock), 

by which time near-full employment 

had been restored.
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to people in the third category. The third category, however, also includes 

foreign-born persons with nonimmigrant visas, such as H-2A workers, who 

are legally authorized to work in the United States during a specifi ed time 

period but do not have permanent U.S. residency status.13

Within the USAGE Model, members of the labor force can participate in one 

of three economic activities: 

• Employment in the United States in one of the model’s 50 occupations;

• Unemployment in the United States; and

• Employment outside the United States.

The supply of labor to each U.S. occupation is determined by the occupation’s 

real wage rate and an occupational preference matrix that represents the relative utility that workers in a specifi c category would obtain from employment 

in a particular economic activity in the upcoming year. Categories of workers 

and economic activities are both defi ned by birthplace, immigration status, 

and occupation (e.g., foreign-born, permanent resident, hired farmworkers in 

the United States).

The occupational preference matrix is a novel feature of the USAGE Model 

and plays a central role in the policy simulations examined here. For a given 

category of worker, a high preference is assigned to the current occupation 

so that nearly all people employed in a given occupation in 1 year offer to 

work in that same occupation in the following year; these incumbents are 

also fi rst in line for available jobs in that occupation. Smaller positive values 

are assigned to alternative occupations with similar skill requirements as the 

current occupation. By increasing (decreasing) the preferences of unauthorized workers for particular occupations, we were able to increase (decrease) 

the supply of unauthorized labor to those occupations, without altering the 

ex ante real wage. More information about the changes made to this matrix 

to implement the two scenarios follow, and detailed, technical descriptions 

of the matrix and its function are available in the appendix or in Dixon and 

Rimmer (2010, 2008).

The impact of changes in labor supply depends on a number of important 

parameters, two of which we modifi ed to conduct sensitivity analyses of the 

enforcement scenario. The fi rst parameter determines how changes in relative 

wages alter the willingness of workers to supply labor to different occupations. The elasticity of substitution for a particular category of workers (say, 

foreign-born, permanent resident) between earning a dollar in a specifi c pair 

of occupations is defi ned as:

Workers’ elasticity of substitution between occupations i and j

= -

Percentage change in 

Percentage change in 

(

(

)

)

Quantity of labor supplied to occupation i

Quantity of labor supplied to occupation j

Real wage in occupation i

Real wage in occupation j

13We used the term “permanent 

resident” to refer only to people with 

the offi cial U.S. immigration status of 

permanent residency. The term does 

not refer to other foreign-born persons 

who have been in the United States for 

a long time, such as an unauthorized 

worker who entered the country many 

years ago.
14

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In keeping with prior work by Dixon et al. (2011), this parameter was set 

equal to 2.0 for all pairs of occupations for both the increased farm labor 

supply scenario and the “standard parameters” version of the decreased 

unauthorized labor supply scenario. Thus, a 1-percent increase in the ratio of 

the real wage of occupation i relative to j would lead to a 2-percent increase 

in the ratio of the quantity of labor supplied to occupation i relative to j. As 

demonstrated below, this setting generated supply elasticities for U.S.-born 

and foreign-born permanent residents to agricultural activities that were 

consistent with econometric estimates.

We conducted a sensitivity analysis to address the assertion that U.S.-born 

workers fi nd certain jobs currently fi lled by unauthorized workers to be undesirable and that farm employers would fi nd it diffi cult to replace their unauthorized workers. Specifi cally, we considered the impact of a less elastic labor 

supply (i.e., one that was less responsive to changes in the real wage) by estimating a variant of the decreased unauthorized labor supply scenario where 

the above parameter was reduced from 2.0 to 0.5. With a lower willingness to 

substitute between occupations, larger increases in the real wage are necessary to draw U.S.-born and foreign-born, permanent resident workers into the 

jobs vacated by unauthorized workers.

The second parameter we modifi ed in our sensitivity analysis was the 

employers’ elasticity of substitution between unauthorized and authorized 

labor, defi ned as:

Employers’ elasticity of substitution between unauthorized and authorized labor

= -

Percentage change in 

Percentage change in 

(

(

)

)

Quantity of unauthorized labor demanded

Quantity of authorized labor demanded

Real wage for unauthorized labor

Real wage for authorized labor

This elasticity is a characteristic of the economy’s production function and, 

thus, infl uences labor demand rather than labor supply. In our second variant 

of the decreased unauthorized labor supply scenario, we reduced the 

employers’ elasticity of substitution between unauthorized and authorized 

labor from 5.0 to 2.0, to capture the possibility that employers treat the two 

types of labor as more differentiated factors of production.14 We also used 

the lower parameter of 0.5 to govern the workers’ elasticity of occupational 

substitution on the labor supply side. In this variant of the decreased unauthorized labor supply scenario, a loss of unauthorized labor results in larger 

real wage increases for the remaining unauthorized workers and smaller real 

wage increases for U.S.-born and foreign-born, permanent resident workers.

14The appendix explains how the 

elasticities of substitution between labor 

provided by persons of different immigration statuses were selected.
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Simulations

Our fi rst simulation—the increased farm labor supply scenario—considered the economic impact of increased employment of temporary nonimmigrant agricultural workers brought about by unspecifi ed changes to the 

H-2A program or a similar program. As mentioned previously, the additional 

temporary nonimmigrant agricultural workers associated with this simulation 

are included in the category of foreign-born people without U.S. permanent 

residency status. The H-2A program authorizes participating workers to enter 

the United States temporarily with a nonimmigrant visa, but H-2A workers 

do not have the opportunity to apply for permanent residency by virtue of 

participating in the program. Moreover, a typical H-2A worker may not be a 

perfect substitute for a typical foreign-born farmworker with permanent residency (e.g., the two groups of workers may have different skills and abilities).

The scale of the increase in the farm labor supply was chosen to correspond 

with an approximate quadrupling of participation levels in relation to the 

H-2A program. In FY 2005, which roughly corresponded with the USAGE 

Model’s base year of 2005, 48,336 positions were certifi ed under the H-2A 

program (U.S. Department of Labor, Employment and Training 

Administration, 2006). We increased the number of temporary nonimmigrant 

agricultural workers by 30,000 in year 1 of the simulation and by 83,000 in 

year 2. By year 15, the number of additional workers of this type reached 

156,000 (fi g. 2). This represents a 32.4-percent increase in the long-run 

number of foreign-born farmworkers without permanent residency status.15 15The number of workers in the 

USAGE Model is measured in terms 

of full-time equivalents (FTEs—2,000 

hours per year), while a position certifi ed in the H-2A program may not 

precisely correspond to 1 FTE.

Figure 2

Impact of labor-supply scenarios on the number of workers 

without permanent residency

2

0

0 5 10 15

4

6

8

Increased farm labor supply scenario1

Base forecast

Decreased unauthorized labor supply scenario

10

12

14

Year of scenario

1Includes additional temporary nonimmigrant agricultural workers.

Millions of people

{

4.0 million

5.8 million

156,000

{

83,000
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While we did not specify a particular policy change that led to increased 

employment of temporary nonimmigrant agricultural workers, we did allow 

the market for hired farm labor to adjust in the model without reference to the 

H-2A program’s current legal wage requirements. To generate the necessary 

increase in labor supply, we altered the occupational preferences of foreignborn workers and new labor market entrants who were not currently in the 

United States, so that they derived higher utility from employment as U.S. 

farmworkers. The increased preference for employment as a U.S. farmworker 

was phased in over the fi rst 2 years of the scenario and was perceived by 

foreign-born workers and new labor market entrants who were not currently 

in the United States as equivalent to a 28.6-percent increase in earnings.

The second simulation—the decreased unauthorized labor supply scenario—

assumed that unspecifi ed policy changes led to a decrease in the number of 

unauthorized workers in the U.S. economy. We assumed that the unauthorized labor force (farm and nonfarm) fell by 2.1 million people in absolute 

terms over the fi rst 5 years of the scenario; compared with the base forecast 

for year 5, this represented a relative reduction of 4.0 million people (see fi g. 

2). Growth in the unauthorized workforce resumed thereafter, but at a slower 

pace than in the base forecast. By year 15, the projected unauthorized workforce had increased to 8.5 million people, compared with 14.3 million in the 

base forecast, or a difference of 5.8 million workers (40 percent).

We implemented this scenario by altering the preferences of foreign-born, 

unauthorized workers in two ways: people currently employed in their home 

countries and new labor market entrants born outside the United States offer 

a smaller quantity of labor to U.S. occupations, and unauthorized workers 

currently employed in the United States offer a larger quantity of labor to jobs 

in their home countries. This led to a reduction in the size of the unauthorized workforce that was large enough to have substantial effects on all sectors 

of the U.S. economy, not just agriculture. At the same time, this reduction fell 

short of assuming that there were no unauthorized workers in the U.S. labor 

force.

While the decreased unauthorized labor supply scenario was not intended 

to represent the impact of a specifi c policy change, we gauged the change 

in occupational preferences so that absolute, year-to-year decreases in the 

number of unauthorized workers took place in the fi rst several years of the 

scenario, refl ecting a policy change with the most dramatic effects on the 

labor market early on. The decreased preference for employment in any occupation in the United States was phased in over the fi rst 2 years of the scenario 

and was perceived by unauthorized workers as equivalent to a 25-percent 

decrease in earnings. Moreover, the parameter that governed the proportion 

of unauthorized workers who returned to their home countries was doubled 

in each of the fi rst 2 years of the scenario, effectively raising this proportion 

from 3 percent in the base year to 12 percent from year 2 forward.

Effects on the Labor Market

Table 1 illustrates how the two scenarios affect the agricultural labor market. 

The increased farm labor supply scenario led to a longrun increase in farm 

employment of 1.7 percent (43,600 full-time equivalents or FTEs), compared 

with the base forecast, and a 4.4-percent decrease in average farm wages. 
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The net wage change refl ected a 10.0-percent decrease in the wages of 

workers without permanent residency status (whose supply increased) and 

a 3.4-percent decrease in average wages for all other workers. The fall in 

wages for U.S.-born and other permanent resident workers occurred because 

employers shifted employment toward less costly temporary nonimmigrant 

agricultural workers. 

The net employment change refl ected a 32.4-percent increase in the number 

of farmworkers who are not permanent residents, partially offset by reductions in the employment of U.S.-born and foreign-born, permanent resident 

workers. This net increase in employment occurred for two reasons. First, 

lower labor costs shifted the capital/labor ratio toward greater use of labor 

for a given amount of capital (the substitution effect). Second, the reduction 

in total costs caused farm output to expand, which increased demand for all 

factors of production (the scale effect).

In the increased farm labor supply scenario, the agriculture-specifi c change 

in labor supply was small enough to have no signifi cant effect on national and 

international demand for farm output. As a result, we may use the realized 

Table 1

Long-run (15-year) changes in immigration levels, earnings per job, and employment in agriculture 

compared with base forecast

Decreased unauthorized labor supply scenario

Reduced elasticities of substitution:

Variable

Increased farm 

labor supply 

scenario

Standard 

parameters

Between 

occupations 

(labor supply) 

Between occupations (labor 

supply) and between authorized 

and unauthorized (labor demand)

Thousands

Increase in temporary nonimmigrant 

agricultural workers 156 NA NA NA

Millions

Decrease in unauthorized workers, all 

occupations NA -5.8 -5.8 -5.8

Percent

Employment in agriculture: 1.7 -3.4 -4.8 -5.5

U.S.-born -5.7 4.0 3.4 2.6

Foreign-born, permanent resident -5.6 3.7 3.1 2.4

Foreign-born, not permanent 

resident1 32.4 -34.1 -38.7 -38.8

Wages in agriculture: -4.4 3.9 8.0 9.9

U.S.-born -3.4 3.3 7.4 5.6

Foreign-born, permanent resident -3.4 3.3 7.5 5.6

Foreign-born, not permanent 

resident1 -10.0 13.6 19.7 39.8

NA = Not applicable.

1In the increased farm labor supply scenario, this group includes both unauthorized workers and the additional temporary nonimmigrant 

agricultural workers associated with the scenario.
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wage and employment outcomes to calculate the effective longrun elasticities of labor supply and demand. For workers who were not permanent residents, the shift in supply lowered wages along the labor demand curve with a 

longrun elasticity of -3.24 (32.4 divided by -10.0), a fi gure similar to estimates 

from Gunter et al. (1992). As already noted, the increased supply of temporary nonimmigrant agricultural workers reduced the demand for U.S.-born 

and other permanent resident workers, lowering their wages along the labor 

supply curve. The longrun elasticity of supply was approximately 1.65 (-5.6 

divided by -3.4), a fi gure close to published econometric estimates.

In the second column of table 1, using the standard parameters, the decreased 

unauthorized labor supply scenario reduced longrun farm employment by 3.4 

percent (86,600 FTEs). This net effect was driven by a 34.1-percent reduction in the employment of unauthorized workers, which was partially offset 

by 3.7- to 4.0-percent increases in the employment of U.S.-born and foreignborn, permanent resident workers. Average farm wages rose by 3.9 percent, 

driven by a 13.6-percent increase in wages paid to unauthorized workers 

and smaller increases for the other two employment categories. As in the 

increased farm labor supply scenario, both wage and employment changes 

were most pronounced for the category of labor whose supply was altered by 

the policy change, with smaller spillover effects on workers in the other two 

categories. The longrun real wage increase for unauthorized farmworkers was 

larger than for U.S.-born and foreign-born, permanent resident farmworkers 

because the two are not perfect substitutes. When faced with a reduction 

in the supply of unauthorized labor, farm employers bid the real wages of 

unauthorized workers up by a larger margin than they raised real wage offers 

to U.S.-born and foreign-born, permanent resident workers to maintain the 

profi t-maximizing level and composition of employment.

Reducing the workers’ elasticity of substitution between occupations (third 

column of table 1) made it more diffi cult for farmers to replace the missing 

unauthorized labor in the decreased unauthorized labor supply scenario. 

Instead of rising by 3.3 percent, the wages of U.S.-born and foreign-born, 

permanent resident farmworkers now rose by 7.4-7.5 percent. Total farm 

employment fell by 4.8 percent, compared with 3.4 percent using the standard 

parameters.

In the fi nal column of table 1, a lower elasticity of substitution between 

authorized and unauthorized labor reduced the willingness of farm employers 

to use authorized workers to replace unauthorized workers. As a result, the 

employment of U.S.-born and foreign-born, permanent resident farmworkers 

increased in the long run by just 2.4-2.6 percent, compared with 3.7-4.0 

percent when the standard parameters were used. This alternative scenario 

was the most costly for agricultural employers: overall wages rose by 

9.9 percent and employment fell by 5.5 percent. Note, however, that the 

predicted wage increase for unauthorized farmworkers was nearly 40 percent, 

which would result in their being paid more than U.S.-born and foreignborn, permanent resident farmworkers in the same agricultural sectors. 

This implausible outcome led us to conclude that an employers’ elasticity 

of substitution between authorized and unauthorized workers of 2.0 was 

unrealistically low.
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Effects on Agricultural Output and Exports

In the USAGE Model, growth in agricultural output is largely determined 

by the price elasticity of demand for each commodity, by the degree to 

which the policy change altered national income and the exchange rate, 

and by the degree to which changes in labor costs affected the total cost of 

production. Changes in labor costs, in turn, depend primarily on the share 

of labor, particularly unauthorized labor, in total costs: farm sectors that use 

a lot of labor reap the greatest cost savings when the supply of unauthorized 

labor increases and experience the greatest cost increases when the supply 

decreases.

Table 2 reports the change in the real value of agricultural output in the 

various scenarios. The impacts of the scenarios on output are expressed in 

terms of the longrun (15-year) percentage difference between real output 

in the scenario and in the base forecast. In the increased farm labor supply 

scenario, agricultural output experienced a longrun relative increase of 0.1-2.0 

percent, depending on the sector. Output of labor-intensive commodities 

(e.g., tree nuts, cotton, fruits, vegetables, and greenhouse products) increased 

Table 2

Long-run (15-year) changes in agricultural output compared with base forecast

Decreased unauthorized labor supply scenario

Reduced elasticities of substitution:

Agricultural sector

Increased farm 

labor supply 

scenario

Standard 

parameters

Between 

occupations 

(labor supply) 

Between occupations (labor supply) 

and between authorized and 

unauthorized (labor demand)

Percent

Fruits 1.2 -2.0 -2.7 -3.5

Vegetables 1.2 -2.9 -3.7 -4.3

Greenhouse and nursery 1.1 -3.5 -4.5 -4.3

Tree nuts 2.0 -2.8 -4.2 -5.4

Feed grains 0.4 -2.5 -3.0 -2.8

Food grains 0.3 -2.6 -2.9 -2.7

Oilseeds 0.1 -1.7 -1.9 -1.6

Sugar crops 0.3 -2.2 -2.5 -2.4

Cotton 1.3 -3.4 -4.4 -4.7

Grass seeds 0.4 -2.9 -3.2 -2.9

Tobacco 0.3 -2.0 -2.2 -2.0

Miscellaneous crops 0.6 -3.1 -3.7 -3.6

Meat 0.3 -2.4 -3.1 -3.0

Poultry 0.2 -2.0 -2.5 -2.4

Dairy 0.3 -2.2 -2.5 -2.4

Miscellaneous livestock 1.5 -3.4 -4.9 -4.9
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by about 1-2 percent, while output of less labor-intensive commodities (e.g., 

oilseeds, grains, and meat animals) expanded by less than 0.5 percent.

The decreased unauthorized labor supply scenario had signifi cant macroeconomic repercussions—it altered national income and the foreign exchange 

rate. As a result, the scenario affected both domestic and foreign demand for 

agricultural products, whether they were labor-intensive or not. The magnitude of a sector’s output decline depended on the elasticity of demand for its 

output and its exposure to foreign trade, in addition to the share of unauthorized labor in total costs. Depending on the sector, longrun agricultural output 

in this scenario fell by 1.7-3.5 percent compared with the base forecast.

Reducing the elasticities of substitution between occupations and between 

unauthorized and authorized labor generally amplifi ed the magnitude by 

which agricultural output was reduced in the decreased unauthorized labor 

supply scenario. When we assumed that the parameter governing the elasticity between occupations was 0.5 instead of 2.0, each agricultural sector 

experienced a relative decrease in output that was about 0.6 percentage 

points larger, on average, than under the standard parameters. These larger 

decreases in output occurred because farm employers had to pay even higher 

real wages to attract U.S.-born and foreign-born, permanent resident workers 

to replace some of the unauthorized workers who left the United States. If we 

also reduced the employers’ elasticity of substitution between unauthorized 

and authorized labor from 5.0 to 2.0, four agricultural sectors—fruits, vegetables, tree nuts, and cotton—experienced larger relative decreases in output.

Table 3 reports the change in agricultural exports. In the increased farm 

labor supply scenario, agricultural exports grew by 0.2-3.2 percent in the long 

run, while agricultural exports fell by higher percentages (0.8-6.3 percent) 

in the decreased unauthorized labor supply scenario (standard parameters). 

As mentioned previously, the latter scenario reduced the labor supply in all 

sectors of the economy. As a result, the supply curves for all U.S. exports 

shifted inward, which caused a terms-of-trade improvement and an associated appreciation of the real exchange rate. This outcome exerted additional 

negative effects on U.S. agricultural exports, beyond those caused by the 

reduction in the supply of labor to the sector. As with output, the decreased 

unauthorized labor supply scenario had a larger negative impact on exports 

when the workers’ elasticity of substitution between occupations was set to a 

lower value. Similarly, sectors more intensive in unauthorized labor experienced greater long-run reductions in exports when the employers’ elasticity of 

substitution between authorized and unauthorized labor was also lowered.

Economy-Wide Effects

The economy-wide effects of the scenarios are summarized in table 4. The 

fi rst row of the table indicates the size of the economy, leaving out the earnings of workers who lack permanent residency status. This value measures 

the aggregate economic well-being of U.S.-born and other permanent residents. The increased farm labor supply scenario had negligible effects on this 

economy-wide measure, since the supply of foreign-born labor was increased 

only for the agricultural sector.
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The decreased unauthorized labor supply scenario had a much larger effect 

on the economy since a far greater number of workers were involved. Gross 

national product (GNP), less wage payments to unauthorized workers, fell 

by about 1 percent over the course of the 15-year projection, relative to the 

base forecast. Dixon et al. (2011) explained the various economic channels by 

which the loss of unauthorized labor reduced the income accruing to U.S.-

born and foreign-born, permanent resident workers and business owners:

• The economy-wide labor supply was reduced, leading to a decrease in 

the longrun level of production.

• Lower output reduced incomes to many other complementary factors 

of production, including capital, land, and U.S.-born and foreign-born, 

permanent resident workers in higher paying occupations.

• The negative longrun effect on incomes to U.S.-owned factors of production would be only partially offset by increased real wages for U.S.-born 

workers in lower paying occupations.

Note that nearly all U.S. workers in the USAGE model were employed in the 

base year and also in the long run of the scenario; there were no large pools 

of unemployed, permanent resident workers (either U.S.- or foreign-born) 

Table 3

Long-run (15-year) changes in agricultural exports compared with base forecast

Decreased unauthorized labor supply scenario

Reduced elasticities of substitution:

Agricultural sector

Increased farm 

labor supply 

scenario

Standard 

parameters

Between 

occupations 

(labor supply) 

Between occupations (labor supply) 

and between authorized and 

unauthorized (labor demand)

Percent

Fruits 1.7 -2.5 -3.8 -4.7

Vegetables 2.7 -5.6 -7.4 -8.8

Greenhouse and nursery 3.1 -6.3 -9.3 -8.5

Tree nuts 3.2 -3.5 -5.6 -7.5

Feed grains 0.8 -3.9 -4.4 -3.9

Food grains 0.5 -3.0 -3.4 -3.1

Oilseeds 0.2 -0.8 -1.0 -0.3

Sugar crops 1.7 -5.0 -6.0 -5.9

Cotton 1.7 -3.6 -4.8 -5.1

Grass seeds 0.6 -3.2 -3.9 -3.1

Tobacco 0.7 -1.6 -2.2 -2.3

Miscellaneous crops 1.5 -4.7 -6.1 -5.9

Meat 1.9 -4.5 -6.4 -5.5

Poultry 0.7 -3.5 -4.5 -3.8

Dairy 2.3 -5.4 -7.4 -7.1

Miscellaneous livestock 2.6 -4.6 -7.2 -7.2
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waiting to fi ll jobs vacated by unauthorized workers. Thus, the replacement farmworkers were drawn from other segments of the workforce—new 

entrants to the labor market, short-term and long-term unemployment, 

workers who switch occupations and become farmworkers in response to the 

changes in the relative wage, and workers displaced from other occupations 

as a result of the general economic contraction associated with the decreased 

unauthorized labor supply scenario.

The decreased unauthorized labor supply scenario also affected the occupational distribution of U.S.-born and foreign-born, permanent resident workers, 

which shifted toward more hired farm work and other lower paying occupations (less than $20,000 per year, on average), such as food service, childcare, 

and housekeeping, and away from higher paying occupations (a much larger 

category). Changes in occupational composition reduced the average real 

wage for U.S.-born and foreign-born, permanent resident workers, even as 

real wages rose in many lower paying occupations. Overall employment of 

such workers fell slightly because lower paid occupations had higher rates of 

turnover, which implied that the longrun, near-full employment equilibrium 

entailed a higher level of frictional unemployment.16

Real wages for U.S.-born and foreign-born, permanent resident workers in 

the decreased unauthorized labor supply scenario rose in hired farm labor 

and other lower paying occupations and fell in higher paying occupations. 

16Frictional unemployment, also 

known as search unemployment, 

occurs during the period when workers 

are searching for an appropriate job 

vacancy, and employers are searching 

for an appropriate worker. Because this 

matching process is not instantaneous, 

frictional unemployment will exist even 

when there are suffi cient vacancies to 

accommodate all job seekers.

Table 4

Long-run (15-year) changes in economy-wide outcomes for U.S.-born and foreign-born, permanent 

resident workers compared with base forecast

Decreased unauthorized labor supply scenario

Reduced elasticities of substitution:

Variable

Increased farm 

labor supply 

scenario

Standard 

parameters

Between 

occupations 

(labor supply) 

Between occupations (labor 

supply) and between authorized 

and unauthorized (labor demand)

Percent

GNP less payments to persons without 

permanent residency status 0.1 -1.0 -0.9 -1.1

Employment: 0.02 -0.2 -0.1 -0.1

Hired farm labor* -5.7 4.0 3.3 2.5

Other lower-paying occupations* 0.1 3.2 2.6 2.2

Higher-paying occupations 0.1 -0.7 -0.5 -0.5

Earnings per job: 0.03 -0.5 -0.3 -0.6

Hired farm labor* -3.4 3.3 7.4 5.6

Other lower-paying occupations* -0.001 1.7 4.5 3.4

Higher-paying occupations -0.01 -0.2 -0.2 -0.6

GNP=Gross national product.

* = Occupations with average annual earnings below $20,000.
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Our parameter choices and the structure of the USAGE Model conform to 

what might be called the Borjas school (e.g., Borjas and Katz, 2007; Borjas 

et al., 2010), which contends that U.S.-born and foreign-born, permanent 

resident workers in lower paying occupations would see their real wages rise 

if there were fewer unauthorized workers in the country. The USAGE Model, 

however, could not address the possible relation between unauthorized immigration and high levels of unemployment among certain demographic groups 

of U.S.-born workers because the model did not distinguish among U.S.-born 

workers according to their demographic characteristics, such as educational 

level.

The sensitivity analyses revealed that reducing the elasticities of substitution 

between occupations and between authorized and unauthorized labor did not 

have a signifi cant impact on the relative decline in GNP (net of payments 

to unauthorized workers) that occurred under the decreased unauthorized 

labor supply scenario. It did, however, affect the magnitude of the real wage 

and employment adjustments for lower paid workers. At lower elasticities of 

substitution between occupations, the wages of U.S.-born and foreign-born, 

permanent resident workers in lower paying occupations rose by more than 

twice as much as under the standard parameters. Reducing the employers’ 

elasticity of substitution between authorized and unauthorized labor tempered 

these wage effects somewhat, because employers were less willing to use 

authorized workers to replace unauthorized workers.
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Research Caveats

The USAGE Model accounted for many of the important linkages among 

sectors of the U.S. economy and between the U.S. economy and the rest of 

the world; however, there were aspects of U.S. agriculture and the market for 

hired farm labor that the USAGE Model did not fully capture:

• Our model did not differentiate between U.S. regions, between detailed 

individual commodities, or between key stages in the agricultural cycle, 

such as planting and harvesting. In reality, agriculture is a heterogeneous industry with distinctly local characteristics and seasonal patterns 

of production and input demand. With regional-level economic data, it 

would be possible to disaggregate the USAGE Model further to examine 

the impact of scenarios on the agricultural sectors of specifi c regions. 

Similarly, further disaggregation by commodity would identify subsectors within fruits or vegetables with very high shares of unauthorized 

labor costs. Such subsectors would probably be most affected by the 

scenarios considered here. 

• Our model did not distinguish between hours worked by self-employed 

farm operators, most of whom are U.S.-born, and hours worked by hired 

wage and salary workers in agriculture. By treating these two as a single 

factor, the model effectively assumed that they were perfect substitutes 

in production within each immigration category, possibly leading to an 

overstatement of the U.S.-born employment response to a given wage 

increase in the decreased unauthorized labor supply scenario.

• Although the capital/labor ratio in each sector of our model was 

allowed to change and did change under the scenarios examined, the 

same set of production functions were used to represent agricultural 

output throughout the model’s 15-year projection period. Since both of 

the scenarios assumed sustained changes in the supply of foreign-born 

agricultural labor, this representation may be unrealistic. For instance, 

a decrease in the supply of foreign-born farm labor (or greater uncertainty about its availability) would likely motivate growers to mechanize 

additional aspects of their operations and to adopt other labor-saving 

aids, such as conveyor belts and elevated work platforms (Calvin and 

Martin, 2010). In the context of our decreased unauthorized labor supply 

scenario, employment of U.S.-born and foreign-born, permanent resident farm labor might not increase as much if production functions were 

allowed to change.

• The USAGE Model did not allow people to change immigration 

status during the 15-year projection period. This limitation of the 

model prevented us from examining more precisely crafted immigration scenarios, such as what would happen to U.S. agriculture if H-2A 

workers became permanent residents.

• Finally, the USAGE Model assumed that all labor and capital resources 

were nearly fully employed in the long run. As a result, the simulations reported here do not apply to the current economic environment in 

which roughly 8 percent of the U.S. workforce is unemployed. Dixon and 

Rimmer (2011a, b) demonstrated that the USAGE Model can be adapted 

to better represent the current U.S. economy by relaxing the assumption 
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that capital is fully employed at all times, and this approach could be 

applied in future research related to agriculture and the market for hired 

farm labor.
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Conclusions

This report illustrates some of the divergent economic interests at stake 

with respect to immigration and the market for hired farm labor. We evaluated two hypothetical scenarios: one in which the number of temporary 

nonimmigrant farmworkers roughly quadrupled in relation to its 2005 level, 

and one in which the supply of unauthorized labor in all sectors of the 

economy (including agriculture) decreased by 40 percent over the long term. 

Agricultural employers benefi ted from expanded employment of temporary 

nonimmigrant farmworkers, with the most labor-intensive agricultural sectors 

experiencing a longrun increase in output of 1-2 percent, compared with the 

base forecast. Accompanying this growth, however, was a 5- to 6-percent 

relative decrease in the number of U.S.-born and foreign-born, permanent 

resident workers employed in agriculture and a 3-percent relative decrease in 

the earnings of those who continued to work in the sector.

A 40-percent reduction in the number of unauthorized workers throughout 

the economy also had a marked, longrun impact on U.S. agriculture, causing 

a 2- to 5-percent relative decline in agricultural output; a 2- to 9-percent 

relative decline in farm exports, and a 3- to 7-percent relative increase in 

the wage rate for U.S.-born and foreign-born, permanent resident farmworkers. Moreover, this reduction in labor supply had negative effects on the 

overall economy. National income accruing to U.S.-born and foreign-born, 

permanent resident workers and to employers (in all sectors) contracted by 1 

percent, compared with the base forecast, and the occupational distribution 

of the U.S.-born and foreign-born, permanent resident portions of the U.S. 

workforce shifted toward hired farm labor and other lower paying jobs. As a 

result, their average wages fell by about half of one percent in the long run, 

relative to the base forecast.

The CGE model allowed us to estimate the macroeconomic impact of a large 

reduction in the supply of unauthorized labor, which lowered domestic demand 

for agricultural output, strengthened the terms of trade and the exchange rate, 

and reduced U.S. agricultural exports. Sensitivity analyses suggested that 

our primary estimates of the impact of the decreased supply of unauthorized 

labor on agricultural output and exports may have been conservative. When 

we reduced the elasticity of labor supply by modifying the workers’ elasticity 

of occupational substitution to represent limited interest in lower paying farm 

employment on the part of workers in other occupations, farm labor costs rose 

more rapidly and agricultural output and exports fell by a greater percentage. 

Reducing the employers’ elasticity of substitution between authorized and 

unauthorized labor caused sectors that make extensive use of unauthorized 

labor to contract even further. In all cases, the decreased supply of unauthorized labor led to lower aggregate levels of agricultural employment and a shift 

toward more capital-intensive production in agriculture.

Our simulations did not consider how complementary programs that might 

accompany changes to immigration laws or policies would affect economic 

outcomes. Further advances in labor-saving agricultural technologies, for 

instance, might help agricultural employers adjust to a decrease in the supply 

of unauthorized labor. Future research using the USAGE Model will explore 

this possibility.
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The Potential Impact of Changes in Immigration Policy on U.S. Agriculture and the Market for Hired Farm Labor: A Simulation Analysis / ERR-135

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Appendix: The USAGE Model 

and Its Application to Immigration

The United States Applied General Equilibrium (USAGE) Model is a recursively dynamic, computable general equilibrium (CGE) model of the U.S. 

economy. The model is based on an earlier CGE model of the Australian 

economy, known as the MONASH model (Dixon and Rimmer, 2002), which 

was adapted to fi t the U.S. economy by Dixon and Rimmer in collaboration 

with the U.S. International Trade Commission (USITC).1 This adaptation 

required the model’s matrices of economic inputs and outputs across all 

industries and factors of production to fi t the national accounts data of the 

U.S. Department of Commerce’s Bureau of Economic Analysis (BEA). 

Technical descriptions of the USAGE Model, including how it was adapted 

to study unauthorized immigration, can be found in Dixon and Rimmer 

(2002, 2008, 2009, 2010) and Dixon et al. (2008, 2011).

Principal features of the USAGE Model include: 

• Modeling the accumulation of physical capital via a set of investment 

functions that are sensitive to rates of return; 

• Tracking the accumulation of foreign debt, the balance of payments, and 

an aggregate representation of U.S. dollar-foreign currency exchange 

rates; 

• Careful treatment of taxation, public expenditures, and the accumulation 

of public debt; and 

• A dynamic model of wage-rate adjustment in response to gaps between 

the demand for and supply of labor. 

The model was implemented in the RunDynam software program, version 

3.2 (February 2009), developed at Monash University by the Centre of Policy 

Studies and Impact Project.

General equilibrium in the USAGE Model is based on supply and demand 

equations that are the results of optimizing decisions by fi rms, investors, 

consumers, and labor-force participants. Each industry chooses the composition of its outputs to maximize revenue from a given set of inputs and the 

composition of inputs to minimize the costs of producing any given set of 

outputs. The production functions that structure the industries’ optimizations 

are constant-ratio-of-elasticity-of-substitution-homothetic (CRESH) over 

occupational labor input types and over primary factors of production (labor, 

capital, and land).2 Intermediate commodities enter in constant-elasticity-ofsubstitution (CES) from across imported and domestic sources. Primary 

factors and commodity inputs are then combined using fi xed coeffi cients 

(Leontief technology). Capital goods are created using CES technology over 

domestic versus imported sources and Leontief technology across commodities. The level of investment is based on expected rates of return, with expectations in this application based on past results. Consumers’ utility functions 

are in the Klein-Rubin (or Stone-Geary) form, defi ned over commodities 

consumed, within which is nested a CES function defi ned over imported and 

domestic sources. Labor demand and labor supply functions are described in 

more detail below.

1U.S. International Trade 

Commission (2004, 2007, 2009) exemplify this collaboration.

2Labor of a given type is fully mobile 

across industries. Capital is industryspecifi c with the allocation of capital 

across industries adjusting in the long 

run through investment. Agricultural 

land is partially mobile among 

agricultural sectors with allocations 

responding to changes in relative rental 

values across agricultural activities.
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To use the USAGE Model to simulate the effects of a policy change or other 

shock, two model runs were needed: a base forecast and a policy simulation. To determine the effects of the scenarios, we compared the quantitative results of the policy simulations with those from the base forecast. We 

expressed model results as percentage differences between the base forecast 

and the scenarios, and these differences were interpreted as the effects of the 

policy change.

The base forecast was an economic forecast for the 15-year period that 

followed the base year (2005). This forecast offered a prediction of how 

the economy would evolve under current laws and policies, and it incorporated trends in technology, household preferences, international trade, and 

demographic characteristics. Most macroeconomic variables in the base 

forecast were exogenous so that their paths could be set in accordance with 

forecasts made by external macroeconomic specialists, such as those at the 

Congressional Budget Offi ce (CBO).

Each simulation was a separate 15-year forecast in which the macroeconomic 

variables were permitted to evolve endogenously. In this simulation closure, 

the consumer price index was the numeraire, which means that changes in 

immigration policy were assumed to have no effect on the rate of infl ation 

(or that the Federal Reserve compensated for any effects so that the rate of 

infl ation was not altered). Further, we assumed that changes in immigration 

policy had no effect on technology or household preferences, which followed 

the same path as in the base forecast.

Public-sector expenditures and tax revenues were calculated to account for 

the differing consumption and savings patterns and for the differing demand 

for public services of authorized and unauthorized workers. Thus, changes 

in public-sector expenditures associated with increases or decreases in the 

number of unauthorized immigrants in the United States were accounted for. 

We then assumed that tax rates were adjusted so that the public-sector defi cit 

followed the same path as in the base forecast.

To simplify the model’s computation and interpretation, the nearly 500 

nonfarm sectors in the original USAGE Model were aggregated and then 

collapsed into 49 sectors, while all 16 agricultural sectors in the model were 

retained in their full detail. Occupations were similarly redefi ned by 

preserving full detail for 45 occupations in which unauthorized immigrants 

were predominantly employed and collapsing the remaining occupations to 

just fi ve broad categories. Appendix tables 1 and 2 list the economic sectors 

and occupations, respectively, within this compact version of the USAGE 

Model. Previous work by Dixon and Rimmer (2010) showed that the model’s 

aggregate results were not appreciably altered by reducing the number of 

sectors and occupations in this fashion.3

For our analysis, the model’s base data were also revised to refl ect more 

recently published agricultural trade and employment statistics for the base 

year. Data for 2005 from the Global Agricultural Trade System (GATS) of 

the U.S. Department of Agriculture’s Foreign Agricultural Service were used 

in place of the model’s original agricultural trade data, and data from USDA’s 

Agricultural Resource Management Survey (ARMS) for average annual 

employment levels during 2004-06 were allocated across the USAGE Model’s 

3The smaller version of the USAGE 

Model used in this report is sometimes referred to as the Mini-USAGE 

Model or USAGE-M. We use the 

term “USAGE Model” to refer to this 

smaller model.
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Appendix table 1

Sectors in the USAGE Model

Agricultural sectors Nonagricultural sectors

Fruits Forestry products Manufacturing not elsewhere classifi ed

Vegetables Commercial fi shing Communications

Greenhouse and nursery Agricultural, forestry, and fi shing services Utilities

Tree nuts Landscaping and horticulture Trading margin

Feed grains Mining Owner occupied dwellings

Food grains Crude oil Business and fi nancial services

Oilseeds Natural gas Medical services

Sugar crops Construction Education

Cotton Dairy and sugar products Social services

Grass seeds Meat products Enterprise

Tobacco Food manufacturing Miscellaneous services

Miscellaneous crops Tobacco products Veterinary services

Meat Apparel Government services

Poultry Textiles Holiday

Dairy Wood furniture Foreign holiday

Miscellaneous livestock Paper and publishing Export tourism

 Chemicals Other nonresidential

Petroleum products Auto rental

 Footwear Railroad services

Metal products Passenger transportation

 Machinery Trucking services

 Computers Water transportation

Electrical machinery Air transportation

Motor vehicles Pipeline exchange

Transportation equipment Natural gas transportation
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Appendix table 2

Number of workers in the base year of the USAGE Model, by labor-market function, birthplace, 

and immigration status 

Birthplace and immigration status

Labor-market function U.S.-born

Foreign-born, 

permanent resident

Foreign-born, not 

permanent resident Totals

Full-time person equivalents

Automotive repair workers 656,208 84,776 61,816 802,799

Bricklayers and masons 118,325 11,450 46,645 176,420

Butchers and meat cutters 257,080 53,195 101,449 411,723

Carpenters 1,010,369 95,596 244,255 1,350,219

Carpet installers 118,131 19,145 46,101 183,377

Cashiers and other sales workers 2,961,866 337,299 199,790 3,498,956

Child care workers 1,059,279 139,274 81,542 1,280,096

Cleaners of vehicles and equipment 252,647 30,002 65,398 348,046

Concrete masons 133,574 18,889 55,111 207,574

Construction laborers 647,828 78,784 282,151 1,008,763

Construction supervisors 660,445 58,526 31,364 750,335

Construction trades helpers 284,251 19,945 124,732 428,928

Cooks 1,493,978 235,590 392,862 2,122,430

Dishwashers 336,989 34,856 135,516 507,361

Drywall installers 101,249 14,428 79,558 195,235

Food preparation supervisors 657,593 83,116 31,748 772,457

Food preparation workers 659,977 86,717 141,804 888,498

Food servers 1,848,847 133,289 167,686 2,149,822

Groundskeeping and maintenance workers 805,803 107,526 372,869 1,286,198

Housekeeping and cleaning workers 777,393 282,520 363,362 1,423,276

Industrial truck operators 513,228 56,877 65,393 635,497

Installation, maintenance, and repair helpers 121,596 9,117 32,678 163,392

Installation, maintenance, and repair workers 1,143,625 154,403 35,334 1,333,363

Janitors and building cleaners 1,788,887 302,330 298,745 2,389,963

Laundry workers 146,850 45,037 42,923 234,810

Miscellaneous agricultural workers 2,029,201 349,471 365,591 2,744,264

Miscellaneous food preparation workers 328,209 56,718 80,354 465,281

Miscellaneous production assistants 1,193,035 192,753 155,004 1,540,792

Nursing 1,720,380 344,375 74,223 2,138,978

Other construction workers 2,372,243 163,265 175,266 2,710,774

Other farm, food, or cleaning workers 1,597,065 212,850 141,166 1,951,081

-- continued
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farm sectors. The sectors in the ARMS data did not precisely match those 

in the USAGE Model, so we made some judgments to allocate the employment numbers. Minor adjustments to the employment data were required so 

that the data were consistent with the model’s value-added numbers, which 

measured the contribution of each factor of production to the value of the 

fi nal output, and so that the resulting base data included reasonable implied 

average wage rates and rates of return on capital.

Appendix table 2

Number of workers in the base year of the USAGE Model, by labor-market function, birthplace, 

and immigration status -- continued

Birthplace and immigration status

Labor-market function U.S.-born

Foreign-born, 

permanent resident

Foreign-born, not 

permanent resident Totals

Full-time person equivalents

Other low-paying production workers 286,472 46,660 41,048 374,180

Other production workers 5,144,004 734,707 362,349 6,241,060

Other service sector workers 73,565,492 8,565,302 418,478 82,549,272

Other transportation workers 2,192,129 279,151 96,181 2,567,462

Packing and fi lling machinery operators 235,467 63,450 113,098 412,016

Painters 289,825 44,861 137,035 471,721

Personal care workers 532,260 120,274 48,362 700,895

Plumbers 470,330 42,099 48,891 561,320

Production helpers 328,203 39,381 116,206 483,790

Retail sales workers 3,764,930 367,726 123,426 4,256,082

Roofers 96,808 11,843 52,696 161,347

Sewing machine operators 135,085 65,021 55,882 255,988

Shipping clerks 615,674 88,179 47,244 751,097

Stock clerks and order fi llers 1,361,698 116,686 87,867 1,566,251

Transportation and packing workers 498,256 130,374 251,681 880,311

Transport drivers 2,797,472 284,676 160,171 3,242,319

Transportation laborers 2,079,621 139,841 212,559 2,432,021

Waiters 1,906,601 187,103 157,833 2,251,536

Welders 353,096 45,295 32,582 430,973

Employed outside United States 0 0 112,324,392 112,324,392

Short-term, unemployment in United States 7,352,260 908,135 365,920 8,626,314

Long-term, unemployment in United States 8,826,192 1,065,883 262,505 10,154,580

Total 140,628,026 17,158,766 120,008,842 277,795,634

Note: Sums may not total exactly due to rounding.

Source: Base data of USAGE Model, which were constructed using employment data by occupation and industry from U.S. 

Department of Labor, Bureau of Labor Statistics (2006) and birthplace and immigration status estimates from Van Hook et al. 

(2005). For more detailed information, see Dixon and Rimmer (2008).
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The USAGE Model’s Labor-Market Module

The version of the USAGE Model used in this report contained a unique 

labor-market module that distinguished between authorized and unauthorized labor—that is, workers with and without the offi cial U.S. immigration 

status of a permanent resident. An overview of how that module functions 

is presented here, and a more detailed technical explanation of the module, 

replete with lists of its component equations, is available in the appendix of 

Dixon and Rimmer (2010) and in section 3 of Dixon and Rimmer (2008).

The main task of the labor-market module was to match categories of workers 

(rather than individual workers) to economic activities. Categories of workers 

(c) are defi ned by the worker’s birthplace (United States or foreign), immigration status (permanent resident or not a permanent resident), and labor-market 

function in the previous year. The model identifi ed six different labor-market 

functions in year t-1:

• Employment in the United States in one of 50 occupations;

• Shortrun unemployment in the United States; that is, unemployed for a 

substantial amount of year t-1 but not unemployed in year t-2;

• Longrun unemployment in the United States; that is, unemployed for a 

substantial amount of year t-1 and also of year t-2;

• Born in the United States and about to enter the workforce;

• Employment outside the United States; and

• Born outside the United States and about to enter the workforce.

In turn, economic activities (a) are defi ned by the worker’s birthplace, 

immigration status, and labor-market function in the current year (appendix 

fi g. 1). For any given category of worker (c), the number of workers that will 

perform a particular economic activity (a) in a given year is determined 

primarily by worker category c’s supply of labor to activity a relative to the 

supply from other categories of labor, and by industries’ demand for the labor 

services of particular occupations.

The extended workforce included all employed people and unemployed jobseekers in the United States, and foreign-born persons who were currently 

working outside the United States but could potentially work in the United 

States as an unauthorized worker. In addition, we assumed that 1 percent of 

Appendix figure 1

Labor-market dynamics in the USAGE Model

Source: Dixon and Rimmer (2010).

Categories t Categories t + 1

Activities t - 1 Activities t Activities t + 1

Year t - 1 Year t Year t + 1
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people in every economic activity in year t-1 withdrew from the extended 

workforce at the beginning of year t, either through retirement or death.

Labor Supply From Workers to Activities

The model ensures that workers in a category defi ned by a particular birthplace and immigration status only make employment offers to economic 

activities with these same characteristics. For example, workers in the category of foreign-born, permanent resident construction laborers can only offer 

to supply labor to economic activities with the same characteristics (foreignborn and permanent resident). Most of these workers will offer labor to the 

economic activity of foreign-born, permanent resident construction laborer; 

that is, they will offer to continue their occupation from the previous year. 

Some workers, however, will offer to change their occupation in response to 

changes in relative wages, and a few will offer to be unemployed. In addition, 

a small percentage is “fi red” each year, creating additional unemployment.

The labor supply of unauthorized workers was represented in a similar 

fashion. Most employed workers in the category of foreign-born, not permanent resident will offer to continue to work in the same U.S. occupation. 

Some unauthorized workers, however, will return to their home country and 

work there. In making these decisions, unauthorized workers compare wages 

outside the United States with U.S. wages for unauthorized workers.

Workers in category c (defi ned by birthplace, immigration status, and labormarket function) decide their offers to economic activity a (also defi ned by 

birthplace, immigration status, and labor-market function) for the year by 

solving a collective utility maximization problem where the objective is to 

maximize the sum of the activity’s real, after-tax wage for all the workers 

in category c. Each category of workers treats earnings from different 

economic activities as imperfect substitutes; in other words, a dollar earned 

in a possible alternative economic activity is not valued as highly as a dollar 

earned in the current economic activity. The utility functions have a CES 

form, where the elasticity parameter refl ects the willingness of workers to 

shift between economic activities in response to changes in after-tax earnings. The utility function for a particular category of workers c includes a 

vector of occupational preference variables that infl uence the utility derived 

by workers from earning money in activity a in year t. The changes in immigration fl ows modeled in our simulations were generated by manipulating 

these preferences, as noted in the main body of the report.

Labor Demand in the United States

The quantity of labor demanded by a specifi c industry in a given year is a 

function of the industry’s capital stock; the overall real, pre-tax wage rate 

facing the industry; and other variables that infl uence the industry’s demand 

for labor, such as technology and commodity prices. In this respect, the 

USAGE Model’s representation of the labor market is similar to many other 

CGE models. The overall real wage rate is a weighted average of the real 

wage rates for the various types of labor employed by the industry.

Within the industry’s labor input, the demand for labor by birthplace, 

immigration status, and occupation is determined by a nested, CES, 
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cost-minimization problem (appendix fi g. 2). The model assumes a high 

elasticity of substitution (7.5) between U.S.-born and foreign-born, permanent resident workers and a somewhat smaller elasticity of substitution (5.0) 

between authorized and unauthorized workers. The value for the elasticity of 

substitution between U.S.-born and foreign-born, permanent resident workers 

was suggested by the econometric estimates of Ottaviano and Peri (2006), 

while the elasticity of substitution between authorized and unauthorized 

workers in the same occupation was assumed to be somewhat lower since 

immigration status is an important attribute of the worker from the standpoint of most employers. Within the context of the model, a small reduction 

in the wage of unauthorized workers relative to that of authorized workers is 

suffi cient to prompt employers to replace many of their authorized workers 

with unauthorized workers. The elasticity of substitution between occupations 

(0.35) was assumed to be low and was drawn from Higgs et al. (1981).

How Are Farmworkers Represented 

Within the Model?

Incorporating accurate information about the quantity of labor employed 

by U.S. agriculture was a challenging aspect of working with the USAGE 

Model. Base data from versions of the USAGE Model used in previous 

immigration studies (Dixon and Rimmer, 2008, 2009, 2010; Dixon et al., 

Appendix figure 2

Nested structure of the USAGE Model’s calculation of each 

industry’s labor input

ı = Elasticity of substitution.

Source: Dixon and Rimmer (2010).

Labor input 

to an industry

Occupation 1 Occupation n

Not permanent resident

(unauthorized)

Permanent resident

(authorized)

U.S.-born Foreign-born

Same as

occupation 1

σ1 = 0.35

σ2 = 5.0

σ3 = 7.5
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2008, 2011) indicated that 1.76 million persons, when measured in terms of 

full-time equivalents (FTEs—2,000 hours per year), worked in U.S. agriculture in 2005. Data from USDA’s Agricultural Resource Management Survey 

(ARMS), by contrast, suggested that this fi gure was closer to 3 million FTEs.

The large difference between these two totals motivated us to modify the 

base data so that they more accurately represented the quantity of labor used 

in U.S. agricultural production. In the USAGE Model, the production functions in both the agricultural and nonagricultural sectors drew labor from 

each occupational category, but the main occupational category of interest 

with respect to agriculture was that of “miscellaneous agricultural worker.” 

This category encompasses the labor of hired farmworkers as well as farm 

operators, spouses, and family members who work on the farm.

Modifying the USAGE Model’s base data for agricultural labor took four 

major steps: 

• ARMS data were used to calculate the average of the quantity of labor 

used annually in each agricultural sector during 2004-06. This total 

represents the sum of the labor time of primary operators, their spouses 

(if applicable), and any secondary operators, unpaid laborers, hired 

laborers, and contract laborers. For U.S. agriculture as a whole, this total 

accounted for about 3.1 million FTEs.

• The sectoral quantities of agricultural labor from ARMS were allocated 

to each agricultural sector in the USAGE Model. Since the agricultural 

sectors in the USAGE Model did not precisely conform to those in 

ARMS, we made some judgments as to how to perform this allocation. 

Overall, the quantities allocated closely corresponded with ARMS’s 

aggregate employment data and approximated ARMS’s sector-specifi c 

data, while maintaining the USAGE Model’s value-added numbers and 

achieving reasonable implied average wage rates and rates of return on 

capital.

• The quantity of unauthorized labor employed in each sector corresponding to the ARMS data was estimated and then allocated to the 

agricultural sectors in the USAGE Model. Multiple data sources were 

used to produce these estimates. Using the ARMS data, the sum of the 

average annual quantities of hired labor and contract labor was calculated for each agricultural sector. We assumed that this sum represented 

the quantity of hired farm labor utilized by each agricultural sector. For 

agriculture as a whole, this sum accounts for roughly 816,000 FTEs. To 

estimate the quantity of hired farm labor supplied by unauthorized 

workers, we assumed that 52 percent of the hired farmworkers in crop 

agriculture and 27 percent of the hired farmworkers in livestock and 

dairy production were unauthorized. We made these assumptions based 

on data on unauthorized workers in crop agriculture from the U.S. 

Department of Labor’s National Agricultural Workers Survey (NAWS) 

and data on noncitizen workers in livestock and dairy production from 

the Current Population Survey (CPS). Together, the quantity of hired 

farm labor in each sector multiplied by the estimated percentage of 

unauthorized workers gave us an estimated quantity of hired labor 

supplied by unauthorized workers in each agricultural sector. 

Agriculture as a whole accounted for about 359,000 FTEs of 
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The Potential Impact of Changes in Immigration Policy on U.S. Agriculture and the Market for Hired Farm Labor: A Simulation Analysis / ERR-135

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unauthorized labor.4 The sectoral estimates of unauthorized farm labor 

were then used as a guide to allocate these 359,000 FTEs across the 

agricultural sectors of the USAGE Model. Again, we made some 

assumptions about how to perform this allocation in order to maintain 

the model’s value-added numbers and achieve reasonable rates of return 

to labor and capital. Earnings per FTE of unauthorized agricultural 

labor in the base year were set to be equal across all agricultural 

sectors.5 We took this step because there was initially an implausibly 

large variation in earnings of unauthorized workers across sectors. The 

amount of average earnings per unauthorized FTE in agriculture (about 

$16,000) was applied to all agricultural sectors in the base year.

5In the main body of the report, earnings per FTE are sometimes referred to 

as earnings per job.

4This number is somewhat smaller 

than the fi gure of about 366,000 

reported in appendix table 2 because the 

larger number includes workers in this 

occupation who are employed outside 

of agriculture.