Foreign Labor and Farm Structure

The paper reports an analysis the effect of foreign labor on agriculture in the host country. Israel serves as an example. The core of the analysis is a model of the family farm where labor and capital are complements in production. As low-wage workers appear in the labor market, both inputs—hired labor and capital—are increased and optimal farm size grows. With larger farms, production is conducted with a smaller number of units. In this way, foreign workers crowd out farm operators as well as domestic hired laborers. This effect is mitigated by the expansion of laborintensive exports or import substitutes.