Working Papers

Minimum Wage Laws Lower Some Agricultural Wages

Minimum wage legislation affects the agricultural sector of the economy differently than other sectors. We show that an increase in the federal minimum wage lowers the wage of some agricultural worker and causes nonagricultural workers to move to agriculture.1 We believe this study is the first to systematically examine the impact of the minimum wage in the hired agricultural labor market.

According to microeconomic theory, enforcing a minimum wage in a previously unregulated labor market censors the wage distribution, raising the wages of workers who were previously earning below the minimum wage to that threshold. Consequently, the average wage in the market increases.
However, if the coverage of the minimum wage is incomplete, the effects on wage distributions are more complex. Imposing a minimum wage drives up the wage in the covered sector and decreases the average wage and increases employment in the uncovered sector.

The agricultural sector was exempt from the original federal minimum wage legislation. Indeed, when the original federal minimum wage act was enacted in 1938, many economists joked that the purpose of the law was to maintain family farms.

Today, agriculture is covered under the federal minimum wage law, but minimum wage legislation still has a differential effect on this sector. For a variety of reasons, including failure to enforce the law, not all agricultural workers receive as much as the federal minimum wage. We document that a significant number of workers receive less than the minimum wage in agriculture — most of them apparently in violation of the law. Agricultural workers who are paid by the piece are significantly more likely to receive a wage below the minimum wage than are workers who are paid by the hour. Thus, we view agriculture as a whole (workers who receive hourly wages and those who receive piece rates) as being only partially covered by the minimum wage. In contrast, virtually all workers in other sectors receive at least the minimum wage.

We examine the effects of the increase in the federal minimum wage from $3.35 to $3.80 on April 1, 1990 and the increase from $3.80 to $4.25 on April 1, 1991, and various shifts in state minimum wage laws. We find that an increase in the federal minimum wage lowers the average wage of piece-rate agricultural workers but raises the average wage of hourly workers, controlling for individuals’ characteristics.

Federal minimum wage legislation affects the wage distribution in two ways. First, it changes the nominal level of federal minimum wage during the period under consideration. Second, it changes relative prices and thereby affects real wages.

In the appendix, we use a simple two-sector, general-equilibrium model where only shifts in labor occur to show the effect on the average wage of imposing a minimum wage that affects only some workers. In particular, we demonstrate that raising the minimum wage may increase or decrease the average wage and the wage bill. Thus, we turn to empirical evidence to determine the effect of the minimum wage on average wages in agriculture.
We start by describing our data and then present summary statistics that illustrate the effects of federal minimum wage increases in agriculture. In the third section, we use multivariate analysis to estimates the effects of changes in minimum wages on wages and on the probability of being paid less than the minimum wage, conditional on individual and local labor market characteristics. In the fourth section, we estimate how days worked outside agriculture or spent outside of the United States in the years before the interview vary with the minimum wage. In the concluding section, we summarize our main findings.