Economic welfare effects of the increase in labor costs on U.S. tobacco farms

The United States Department of Labor (USDOL) amended elements of the 2008 H-2A Final Rule and adopted the 2010 Final Rule, which came into effect on March 15, 2010. Compared to the 2008 H-2A Final Rule, the 2010 H-2A Final Rule is arguably more expensive for farm employers. The H-2A Final Rule provides regulations which govern the H-2A program, a guest worker program allowing U.S. farm employers to bring foreign workers into the country to perform seasonal and temporary agricultural work. The most influential cost-increasing element of the 2010 H-2A Final Rule is a change in the methodology by which the Adverse Effect Wage Rate (AEWR) is calculated. The AEWR is the minimum wage rate that must be offered and paid to H-2A workers and similarly employed U.S. farm workers. This paper estimates the economic welfare effects of the additional labor costs on tobacco farms using the Equilibrium Displacement Model. Considering the prospect of U.S. immigration reform and revision of the current H-2A program, results provide an insight into the potential effects of changes in policy and labor regulations affecting wages and admission of foreign guest farm workers.   Key words: Tobacco, adverse effect wage rate, H-2A Final Rule, equilibrium displacement model, economic welfare effects.