Effect of Labor Supply Shifts on U.S. Farm Production: An Application of Muth's Model
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Producers with high labor costs may be sensitive to changes in farm labor supply because labor availability can affect wages and production levels. This study develops comparative static models to study how a negative shift in farm labor supply may affect agricultural production of labor-intensive crops. The effects of a 10-percent reduction in labor supply on the output of 10 commodities modeled were small, ranging between 0.66 and 4.25 percent. However, a 30-percent reduction in labor supply significantly increased the effect on production. Results suggest that commodities with high labor factor shares and high output elasticities are particularly sensitive to reductions in labor supply.