Wages are up.

That’s been a common refrain over the last several years.

Anecdotal evidence is all around us, and the data from the Bureau of Labor Statistics (BLS) and USDA allows us to see the magnitude of these changes. The map below shows the change in dairy farm workers’ weekly wages between the first quarter of 2018 and that of 2019 for key states. It ranges from 2.74 percent in Wisconsin, to 4 percent in California, and 5.5 percent in Pennsylvania. The BLS data reflects only changes in paid labor, excluding the value of unpaid labor that is predominant on smaller operations.

The USDA data on labor cost of production, including both paid and unpaid labor, indicate that labor cost have garnered more of the farm budget in recent years. In 2011 to 2012, labor represented about 13 percent of total expenses on average U.S. dairy farms. That number is closing on 18 percent for 2018 as can be seen on the graph below.

That climbing cost seems to have affected farms across the country and across farm sizes. The figure below shows that between 2017 and 2018, labor expenses per hundredweight have gone up for most states, no matter their average farm size.

Of course, tightening labor markets due to the immigration situation, historically low unemployment rates, and the expanding U.S. economy can explain much of the wage increases. But the specific economic context of the dairy sector is also at play.

Usually, higher wages combined with low interest rates will favor capitalization of production . . . buying more machinery and equipment to enhance labor efficiency and prevent large increases in labor cost per unit of production. However, the low profit margins of the last few years have limited those possibilities. That investment response might be overdue, and with higher milk prices on the horizon, we could well see an acceleration of automation and capitalization among dairy operations.

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(c) Hoard's Dairyman Intel 2019
November 25, 2019
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