Columbus, Ohio — A new study published in Applied Economic Perspectives and Policy finds that pay differences among U.S. agricultural workers doing the same job have narrowed over time, meaning that wages across different levels of worker skill and quality are becoming more similar. Wage compression can be a major concern for employers, as it represents a breakdown of the relationship between worker quality and wage. In a well-functioning labor market, higher quality workers or higher skilled workers are paid higher wages, and vice versa. Wage compression is one sign that that is no longer the case, which could manifest on a farm operation by making it difficult to retainhighly skilled workers who are sensitive to not being paid significantly more than their lower-skilled counterparts.
The study, “Do Agricultural Wages Exhibit Wage Compression? Evidence From Administrative and Worker-Level Data,” was authored by Margaret Jodlowski, an assistant professor in the Department of Agricultural, Environmental, and Development Economics (AEDE), College of Food, Agricultural and Environmental Sciences at The Ohio State University. The study examines national wage data from the U.S. Bureau of Labor Statistics and worker-level data from the National Agricultural Worker Survey to understand long-term trends in agricultural pay.
Dr. Jodlowski found that wage compression is widespread across the agricultural sector and is mainly driven by wages from the bottom of the wage distribution increasing, without a corresponding increase in wages at the top. These changes are mainly occurring within occupations, and there is limited evidence to suggest that this narrowing reflects changes to the demographic composition of workers. The shift became especially pronounced beginning in 2020, pointing to the influence of labor market disruptions that originated during the COVID-19 pandemic and ongoing pressure from policy uncertainty, especially related to agricultural labor.
According to the study, these findings matter for farmers, agricultural employers, and policymakers as pay structures continue to change in response to worker shortages, minimum wage laws, and regulatory pressures.
Key findings include:
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Wages within agricultural jobs have grown more similar over time.
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Wage compression increased sharply starting in 2020.
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The trend may affect labor policy, hiring decisions, and farm management and has implications for retaining high quality workers on a specific operation or even in the agricultural sector overall.
Next steps for the research include a more formal look at the ways in which institutional wages (that is, the wages set by government institutions, such as the minimum wage), have or have not driven wage compression in the sector. Agriculture work may be influenced by the state or federal minimum wage, but wage setting procedures may also be influenced by the Adverse Effect Wage Rate, or AEWR. The AEWR is the wage paid to H-2A (temporary agricultural guestworkers) workers and may function as a de facto agricultural minimum wage. In an extension of this paper, Dr. Jodlowski will examine how much of the wage compression observed in this paper can be explained by changes to the minimum wage or to the AEWR.
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