Measuring native displacement by foreign labor:A job-specific approach and

application to North Carolina farms

Michael A. ClemensCGD & NYU FAI

July 18, 2013 · IFPRI

Outline

Why a new approach

Empirical strategy

Setting and data

Results

Outline

Why a new approach

Empirical strategy

Setting and data

Results

Existing approaches

‘Area’ approach (Card 1990, . . . )

‘Factor proportions’ approach (Borjas 2003 . . . )

Challenges

→ Causation

→ Mechanism

→ Native self-selection

→ Connection to policy

Existing approaches

‘Area’ approach (Card 1990, . . . )

‘Factor proportions’ approach (Borjas 2003 . . . )

Challenges

→ Causation

→ Mechanism

→ Native self-selection

→ Connection to policy

Existing approaches

‘Area’ approach (Card 1990, . . . )

‘Factor proportions’ approach (Borjas 2003 . . . )

Challenges

→ Causation

→ Mechanism

→ Native self-selection

→ Connection to policy

Existing approaches

‘Area’ approach (Card 1990, . . . )

‘Factor proportions’ approach (Borjas 2003 . . . )

Challenges

→ Causation

→ Mechanism

→ Native self-selection

→ Connection to policy

Existing approaches

‘Area’ approach (Card 1990, . . . )

‘Factor proportions’ approach (Borjas 2003 . . . )

Challenges

→ Causation

→ Mechanism

→ Native self-selection

→ Connection to policy

Existing approaches

‘Area’ approach (Card 1990, . . . )

‘Factor proportions’ approach (Borjas 2003 . . . )

Challenges

→ Causation

→ Mechanism

→ Native self-selection

→ Connection to policy

Existing approaches

‘Area’ approach (Card 1990, . . . )

‘Factor proportions’ approach (Borjas 2003 . . . )

Challenges

→ Causation

→ Mechanism

→ Native self-selection

→ Connection to policy

Existing approaches

‘Area’ approach (Card 1990, . . . )

‘Factor proportions’ approach (Borjas 2003 . . . )

Challenges

→ Causation

→ Mechanism

→ Native self-selection

→ Connection to policy

Employment effects and native labor supply

y = f(θg(N ,M)

),

where g =(Nρ + γMρ

) 1ρ

(1)

Π ≡ f (θg)− wNN − wMM (2)

ln f ′ + ln gN = lnwN − ln θ (3)

M s fixed;N s = ξ(wN)ε

(4)

NM = φ(ε, ·)(θf ′′

f ′gM +

gNMgM

)(5)

Employment effects and native labor supply

y = f(θg(N ,M)

),

where g =(Nρ + γMρ

) 1ρ

(1)

Π ≡ f (θg)− wNN − wMM (2)

ln f ′ + ln gN = lnwN − ln θ (3)

M s fixed;N s = ξ(wN)ε

(4)

NM = φ(ε, ·)(θf ′′

f ′gM +

gNMgM

)(5)

Employment effects and native labor supply

y = f(θg(N ,M)

),

where g =(Nρ + γMρ

) 1ρ

(1)

Π ≡ f (θg)− wNN − wMM (2)

ln f ′ + ln gN = lnwN − ln θ (3)

M s fixed;N s = ξ(wN)ε

(4)

NM = φ(ε, ·)(θf ′′

f ′gM +

gNMgM

)(5)

Employment effects and native labor supply

y = f(θg(N ,M)

),

where g =(Nρ + γMρ

) 1ρ

(1)

Π ≡ f (θg)− wNN − wMM (2)

ln f ′ + ln gN = lnwN − ln θ (3)

M s fixed;N s = ξ(wN)ε

(4)

NM = φ(ε, ·)(θf ′′

f ′gM +

gNMgM

)(5)

Employment effects and native labor supply

y = f(θg(N ,M)

),

where g =(Nρ + γMρ

) 1ρ

(1)

Π ≡ f (θg)− wNN − wMM (2)

ln f ′ + ln gN = lnwN − ln θ (3)

M s fixed;N s = ξ(wN)ε

(4)

NM = φ(ε, ·)(θf ′′

f ′gM +

gNMgM

)(5)

Outline

Why a new approach

Empirical strategy

Setting and data

Results

Two natural experiments

N s level: Obligatory demand for citizen labor

→ H-2A visa, no limit to foreign labor supply

→ Perfect substitutes at ‘Adverse Effect’ Wage

→ Foreign Labor Certification requirements

N s slope: Shock to reserve option in recession

→ max{C ,L} U = C 1−βLβ s.t. C + wL = wL̄ + R

→ ns,i =

{0 if w

R < β1−β

1L̄;

(1− β)L̄− β · Rw if wR > β

1−β1L̄.

Two natural experiments

N s level: Obligatory demand for citizen labor

→ H-2A visa, no limit to foreign labor supply

→ Perfect substitutes at ‘Adverse Effect’ Wage

→ Foreign Labor Certification requirements

N s slope: Shock to reserve option in recession

→ max{C ,L} U = C 1−βLβ s.t. C + wL = wL̄ + R

→ ns,i =

{0 if w

R < β1−β

1L̄;

(1− β)L̄− β · Rw if wR > β

1−β1L̄.

Two natural experiments

N s level: Obligatory demand for citizen labor

→ H-2A visa, no limit to foreign labor supply

→ Perfect substitutes at ‘Adverse Effect’ Wage

→ Foreign Labor Certification requirements

N s slope: Shock to reserve option in recession

→ max{C ,L} U = C 1−βLβ s.t. C + wL = wL̄ + R

→ ns,i =

{0 if w

R < β1−β

1L̄;

(1− β)L̄− β · Rw if wR > β

1−β1L̄.

Two natural experiments

N s level: Obligatory demand for citizen labor

→ H-2A visa, no limit to foreign labor supply

→ Perfect substitutes at ‘Adverse Effect’ Wage

→ Foreign Labor Certification requirements

N s slope: Shock to reserve option in recession

→ max{C ,L} U = C 1−βLβ s.t. C + wL = wL̄ + R

→ ns,i =

{0 if w

R < β1−β

1L̄;

(1− β)L̄− β · Rw if wR > β

1−β1L̄.

Two natural experiments

N s level: Obligatory demand for citizen labor

→ H-2A visa, no limit to foreign labor supply

→ Perfect substitutes at ‘Adverse Effect’ Wage

→ Foreign Labor Certification requirements

N s slope: Shock to reserve option in recession

→ max{C ,L} U = C 1−βLβ s.t. C + wL = wL̄ + R

→ ns,i =

{0 if w

R < β1−β

1L̄;

(1− β)L̄− β · Rw if wR > β

1−β1L̄.

Two natural experiments

N s level: Obligatory demand for citizen labor

→ H-2A visa, no limit to foreign labor supply

→ Perfect substitutes at ‘Adverse Effect’ Wage

→ Foreign Labor Certification requirements

N s slope: Shock to reserve option in recession

→ max{C ,L} U = C 1−βLβ s.t. C + wL = wL̄ + R

→ ns,i =

{0 if w

R < β1−β

1L̄;

(1− β)L̄− β · Rw if wR > β

1−β1L̄.

Two natural experiments

N s level: Obligatory demand for citizen labor

→ H-2A visa, no limit to foreign labor supply

→ Perfect substitutes at ‘Adverse Effect’ Wage

→ Foreign Labor Certification requirements

N s slope: Shock to reserve option in recession

→ max{C ,L} U = C 1−βLβ s.t. C + wL = wL̄ + R

→ ns,i =

{0 if w

R < β1−β

1L̄;

(1− β)L̄− β · Rw if wR > β

1−β1L̄.

Two natural experiments

N s level: Obligatory demand for citizen labor

→ H-2A visa, no limit to foreign labor supply

→ Perfect substitutes at ‘Adverse Effect’ Wage

→ Foreign Labor Certification requirements

N s slope: Shock to reserve option in recession

→ max{C ,L} U = C 1−βLβ s.t. C + wL = wL̄ + R

→ ns,i =

{0 if w

R < β1−β

1L̄;

(1− β)L̄− β · Rw if wR > β

1−β1L̄.

NC unemployment, by DES office & statewide

Outline

Why a new approach

Empirical strategy

Setting and data

Results

North Carolina Growers Association

North Carolina Growers Association

Overview of Mexican H-2A Workers at NCGA

Year Number Months/worker

2004 6799 4.454

2005 5602 4.527

2006 4786 4.571

2007 5410 4.797

2008 5969 5.233

2009 6237 5.084

2010 6201 5.613

2011 6474 5.496

2012 7008 5.506

Mean 6054 5.054

Number of workers shows number of unique individuals starting one or more H-2A employment events in eachcalendar year. Months/worker shows average months of work by each individual. ‘Mean’ row covers 2004–2012.

Overview of DES office referrals

Unemp. DES to all employers

Rate N New Referred

Year (%) apps Non-ag. Ag.

1998 3.53 140782 – – –1999 3.27 132707 – – –2000 3.75 154577 – – –2001 5.64 234934 – – –2002 6.63 279281 – – –2003 6.45 274193 – – –2004 5.54 236328 – – –2005 5.26 229030 – – –2006 4.74 212099 236011 1642996 408802007 4.71 213276 238386 1586462 409242008 6.19 283048 256865 1498566 329582009 10.76 490010 276978 1396083 271682010 10.94 504885 267076 1604416 322452011 10.51 489095 – – –2012 9.52 446469 – – –

Overview of DES office referrals

Unemp. DES to NCGA

Rate N Referred Hired Started Complete UnknownYear (%)

1998 3.53 140782 112 98 14 0 251999 3.27 132707 41 39 6 0 32000 3.75 154577 35 34 4 0 12001 5.64 234934 46 44 13 0 02002 6.63 279281 99 91 43 2 22003 6.45 274193 244 242 83 3 02004 5.54 236328 134 134 37 2 32005 5.26 229030 57 57 22 6 22006 4.74 212099 88 88 22 10 152007 4.71 213276 – – – – –2008 6.19 283048 170 167 58 11 502009 10.76 490010 108 105 48 6 02010 10.94 504885 74 73 30 10 102011 10.51 489095 268 245 163 7 02012 9.52 446469 253 213 143 10 0

Average NCGA H-2A employment events per year

Avg. U.S. referrals/yr (residence) & DES offices

Average unemployment rate in 2011 (%)

Outline

Why a new approach

Empirical strategy

Setting and data

ResultsNative labor supply: Extensive marginNative labor supply: Intensive marginEffects on native employment

Effects of the recession on job referrals

All ag. jobs NCGA jobs

Referred Placed Referred Hired Started Completed

Unemployment (%) −2.398∗ −0.417 0.0122∗∗ 0.0108∗∗ 0.00909∗∗ −0.000281(1.019) (0.519) (0.00410) (0.00381) (0.00289) (0.000465)

New applications (000s), t 345.7∗ 258.0 −0.260 −0.240 −0.208 −0.00985(168.3) (146.1) (0.168) (0.155) (0.120) (0.0144)

” t − 1 45.26 76.21 −0.343∗ −0.323∗ −0.189∗∗ −0.0258(29.50) (45.29) (0.145) (0.142) (0.0731) (0.0207)

” t − 2 −33.14 −36.53 −0.376∗ −0.349∗ −0.173 −0.0251(30.14) (27.29) (0.176) (0.172) (0.0955) (0.0195)

” t − 3 −29.22 −53.81 −0.548∗∗ −0.547∗∗ −0.309∗∗ −0.0298∗

(19.56) (32.93) (0.176) (0.168) (0.113) (0.0146)” t − 4 −29.11∗ −26.57 −0.333∗ −0.296∗ −0.136∗ −0.00699

(12.89) (15.20) (0.133) (0.127) (0.0545) (0.0167)” t − 5 −55.91∗∗ −49.36∗ −0.390∗ −0.396∗ −0.156 −0.0394∗

(21.43) (20.50) (0.169) (0.167) (0.0831) (0.0185)” t − 6 −57.18∗∗ −45.91∗∗ 0.375∗ 0.384∗ 0.161∗∗ 0.00613

(19.32) (16.93) (0.171) (0.171) (0.0542) (0.00929)” t − 7 −50.86∗ −52.23∗ 0.459 0.455 0.277∗ 0.108

(23.17) (22.66) (0.266) (0.271) (0.137) (0.0664)” t − 8 −28.65 −48.62 0.769∗ 0.731∗ 0.492 0.0212∗

(15.82) (25.34) (0.326) (0.321) (0.253) (0.0103)” t − 9 1.086 14.74 0.219 0.189 0.0361 −0.0340

(12.44) (10.51) (0.288) (0.266) (0.234) (0.0404)” t − 10 −49.35 −22.89 0.385∗ 0.362∗ 0.163∗ 0.0296

(43.45) (35.70) (0.161) (0.150) (0.0808) (0.0327)

Constant 41.86∗∗∗ 20.26∗∗ 0.0779 0.0781 0.0117 0.0141∗

(11.36) (7.005) (0.0412) (0.0403) (0.0168) (0.00688)

N 3828 3828 3828 3828 3828 3828

Marginal effects of unemployment rate on U.S.

labor supply to NCGA (State total/yr)

U.S. workers, from referral to start date

U.S. workers, from referral to start date

U.S. & Mexican, from start to quit/fired

U.S. only, from start to quit/fired

Missing observations on outcome and duration

U.S. worker duration Mexican worker duration

Not missing Missing Not missing Missing

Outcome:Completed 67 1 56505 0Quit 488 100 2285 0Fired 31 7 2464 1Unknown 0 111 0 126

Rough estimates of MRP of manual labor

Crop Cucumber Sweet potato Tobacco

Year 2002 2013 2002 2012 2009

Revenue/acre ($) 2040.00 2325.00 2637.50 3375.00 4050.00Non-labor cost/acre ($) 806.17 1168.20 1485.82 1696.56 2627.95

Hours/acre 80 80 50 50 60

Revenue/acre/hr ($) 25.50 29.06 52.75 67.50 67.50Non-labor cost/acre/hr ($) 10.08 14.60 29.72 33.93 43.80Labor cost/acre/hr ($) 10.54 13.58 10.54 13.58 13.08

Cost fraction 0.51 0.48 0.26 0.29 0.23

NCGA wage/hour ($) 7.53 9.70 7.53 9.70 9.34

Short run, zero substitution (Leontief)MRP/hr/acre ($) 25.50 29.06 52.75 67.50 67.50

Multiple of wage 3.39 3.00 7.01 6.96 7.23

Long run, unit elasticity of substitution (Cobb-Douglas)MRP/hr/acre ($) 13.04 14.00 13.81 19.29 15.52

Multiple of wage 1.73 1.44 1.83 1.99 1.66

Statewide US job creation by 6,500 H-2A workers

Short run Long run

low high low high

MRP multiplier 4 6 2 3

Total wage bill ($m) 74.7 74.7 74.7 74.7

Revenue product ($m) 298.8 448.1 149.4 224.1

Output multiplier 1.657 1.657 1.657 1.657

Effect on NC GDP ($m) $495 $743 $248 $371

Jobs multiplier 9.527 9.527 9.527 9.527

US jobs created in NC 2846 4269 1423 2135

H-2A workers per US job 2.3 1.5 4.6 3.0

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