IMPACT OF MINIMUM WAGE LEGISLATION ON MICHIGAN FRUIT FARM INPUT ORGANIZATION By Bryant Hinckley Wadsworth A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Agricultural Economics PLE AS E NOTE: Some p ages m ay have indistinct print. Filmed as received. U n i v e r s i t y M i c r o f il m s, A X e r ox Education C o m pa n y ABSTRACT IMPACT OF MINIMUM WAGE LEGISLATION ON MICHIGAN FRUIT FARM INPUT ORGANIZATION . By Bryant Hinckley Wadsworth The major purpose of this study was to determine the probable impact of minimum wage legislation on the employment of unskilled harvest labor on Michigan fruit farms. A survey of 172 large Michigan fruit farms was used as a basis for the study, with other essential data coming from Michigan Department of Agriculture and USDA publications, personal interviews with agricultural engineers, Michigan fruit producers, and machinery producers and dealers, as well as from previous studies done in the Department of Agricultural Economics at Michigan State University. A simulated wage rate increase on the 172 farms indicated that mechanization of all mechanically harvestable crops would likely occur on some of the farms once the minimum wage rate reached the $2 per hour level. A representative synthetic farm based on the descriptive data of the 172 farms in the survey and analyzed vising a pseudo-dynamic linear programming model indicated a definite inverse relationship between the wage rate level and the skilled as well as unskilled labor requirements on the farm. These findings lend support to the generally accepted economic theory that a minimum wage law will tend to increase unemployment in a competitive market setting and thus may increase rather than reduce the incidence of poverty among workers. i To the Memory of My Parents ii ACKNOWLEDGMENTS As with any piece of research of this size and scope, many dif­ ferent people played essential roles in making its consummation possible. I especially wish to recognize the members of my thesis committee. Dr. Vernon L. Sorenson was committee chairman and gave very helpful suggestions on the direction and interpretation of the research. Dr. Steven Harsh gave generously of his time and talents, helping especially in the areas having to do with computer programming. Dr. Karl T. Wright was a great help, particularly because of his extensive background in Michigan agricultural research. Others in the Department of Agricul­ tural Economics who gave freely of their time and expertise on various parts of the research were Dr. Myron Kelsey, Dr. Don Ricks, Dr. G. E. Rossmiller, Dr. John R. Brake, David Bell, Dennis Henderson, and George Perkins. Of necessity, this research involved experts in disciplines other than Agricultural Economics. Drs. Clark Nlcklow and Jerome Hull, Jr., of the Horticulture Department are particularly worthy of mention, as are Jordan H. Levin and B e m i e Tennis of the Department of Agricultural Engineering. There were of course many others who helped me either with the actual research or by giving me essential moral support. Perhaps fore­ most among them were my parents, F. Don and Sylvia H. Wadsworth, both iii of whom passed away during the time I was working on the project. Their support while alive and their memory since their passing has been a great motivating force to me. Last but by no means least, I should like to recognize the great support given me by my wife Janet, who, among other things, typed the final draft. iv TABLE OF CONTENTS Page LIST OF TABLES................ ix LIST OF F I G U R E S .................... xv Chapter I. INTRODUCTION ............................................... The Problem............................................... Low Income Among Hired Farm Workers .................. Attempts to Alleviate Poverty Among Farm Workers. . . . Disagreement on Desirability of Minimum Wage Legislation.............................. .......... Objectives ............................................... Procedure................................................. Reasons for Using Fruit Farms as Basis ofStudy . . . . Reasons for Use of Larger Fruit Farms In the Study. . . Sample of Large Farms Used as Bench Mark.............. Equal Manual-Mechanical Harvest Cost A c r e a g e s ........ Linear Programming and Optimum Enterprise Mix ........ II. 1 1 1 2 2 3 4 4 5 7 8 9 ECONOMIC THEORY AND THE MINIMUM WAGE L A W .....................11 Theory's Place in Research ............................... 11 The Theory of the Second Best............................... 11 Origin of the Wage Rate..................................... 12 Minimum Wage Defined..................................... 12 Demand for L a b o r ........................................... 13 Determinants of Elasticity of Demand.....................14 Labor S u p p l y ............................................... 19 Special Considerations........................ .......... 21 The Effect of Time....................................... 21 Technological Progress................................... 22 Institutional Changes ................................. 22 Product Supply Shift..................................... 22 Input Cost Proportions and Enterprise M i x .............. 23 Other Non-Wage Considerations........................... 23 Summary. . ............................................... 24 III. MICHIGAN HARVEST LABOR PRODUCTIVITY AND POTENTIAL MECHANIZATION.............. 26 A Basic Assumption .............................. .... 26 Importance of Harvest Labor Costs........................... 26 v Page R.M.C. Worker Productivity Studies ...................... 27 Crops or Enterprises Used in A n a l y s e s ...................27 Wage Cost Calculation................................... 28 Existing Harvest Machinery ........................ 30 Apples. . . . . . . ................................... 30 Tart Cherries........................................... 33 Sweet Cherries........................................... 34 P e a c h e s ................................................. 35 P e a r s ...................................... 35 P l u m s ........................................ 36 Grapes................................................... 36 Strawberries............................................. 37 Reason for Including Some Vegetables in the Analyses . . . 38 A sparagus............................................... 38 C ucumbers............................................... 39 Tomatoes................................................. 39 Summary..................................................... 40 Future Outlook on InputSubstitution ...................... 41 IV. EQUAL HARVEST COST ACREAGE POINTS— MECHANICAL VS. HAND HARVESTING............................................... 45 Criteria for Harvest Mechanization......................... 45 MSU Forward Planning Program No. 3 ......................... 46 Estimated Equal Harvest Cost Acreage Points— 49 1970 and Expected 1980................................. Equal Harvest Cost Acreage Points and Profit Maximization........................................... 49 The Impact of Yield on Equal Harvest Cost Acreage Points................................................. 52 One Machine for Three Different Crops: Tart Cherries, Sweet Cherries and Plums..................... 52 Caution in Using the Results of These Calculations on Individual Farms ................................... 54 V. ESTIMATED SUBSTITUTION EFFECT OF INCREASING WAGE RATES SIMULATED ON 172 LARGE MICHIGANFRUIT FARMS.............. 56 Important Assumptions....................................... 56 Summary of a 1966 Large Farm Survey......................... 57 Results of Simulated Wage Rate Increases on Farms in the Survey. ........................... 59 , Increased Need for Skilled Labor......................... 60 Impact of Approval of Abscission Chemical for Sweet Cherry Harvesting............................... 64 Potential Custom Harvesting............................. 65 Implications of Simulated Substitution Effect............... 69 Impact on the Relative Profitability of the Various C r o p s .......... 71 vi Page VI. ESTIMATED IMPACT ON ENTERPRISE ORGANIZATION OF A SYNTHETIC MICHIGAN FRUIT FARM............................... 73 Enterprise Operationalized ............................... 73 Different Enterprises Have Different Labor Requirements. . 73 Approach to Estimate Enterprise Profitability Trends . . . 75 Synthetic Farm Described................................. 75 Linear Programming Model U s e d ............................ 78 Wage Rate Levels Used . ................................. 84 Labor Type Transfer Function............................. 85 Changes in Technology ................................. 86 Preliminary Calculations of Breakeven Wage Rate Levels . . 87 1970 Breakeven Wage Rate Levels and Prevailing Wage Rates P a i d ....................................... 88 Maximum Profits on Synthetic Farm........................... 89 Preliminary Ranking of "New" Enterprises ................ 90 Optimum Enterprise Mix on the Synthetic F a r m ...............93 Labor Requirement Changes on the Synthetic Farm.............96 VII. SUMMARY AND CONCLUSIONS................ 99 LIST OF REFERENCES.................................................. 104 GENERAL REFERENCES.................................................. 107 APPENDIX A: RELATIVE AVERAGE INCOME LEVEL OF MICHIGAN FARM WORKERS (1960-1969)............ Ill APPENDIX B: BACKGROUND ON PRESENT STATE AND FEDERAL MINIMUM WAGE LAWS COVERING FARM WORKERS................112 APPENDIX C: MICHIGAN FARM NUMBERS BY ECONOMIC CLASS................115 APPENDIX D: LABOR VS. NON-LABOR COSTS IN MICHIGAN FRUIT AND VEGETABLE PRODUCTION ............................. 116 APPENDIX E: HOURLY AND PIECE-RATE LABOR COST CALCULATIONS FOR ELEVEN BASIC CROPS ............................... 117 APPENDIX F: FRUIT AND VEGETABLE HARVEST PERIODS IN MICHIGAN. . . . 1 2 8 APPENDIX G: RELATIVE SIZE OF VARIOUS FRUIT CROPS IN MICHIGAN . . . APPENDIX H: SIMULATED ESTIMATES ON MECHANIZATION AND REDUCED HARVEST LABOR REQUIREMENTS ON.172 LARGE MICHIGAN FRUIT FARMS............................................ 130 APPENDIX I: PREVAILING FARM LABOR WAGE RATES AND MINIMUM PIECERATES EFFECTIVE SEPTEMBER 21, 1970, IN MICHIGAN. . . . vii 129 137 I Page APPENDIX J: ESTIMATED LABOR REQUIREMENTS IN MICHIGAN FRUIT AND VEGETABLE PRODUCTION ............................ 139 APPENDIX K: ESTIMATED LABOR REQUIREMENTS BY SEASONAL TIME PERIOD IN FRUIT AND VEGETABLE PRODUCTION IN MICHIGAN— BEARING YEARSO N L Y ........................... 141 APPENDIX L: ESTIMATED CASH (NON-LABOR) COSTS IN FRUIT AND VEGETABLE PRODUCTION IN MICHIGAN— BEARING AND NON-BEARING YEARS...................................... 148 APPENDIX M: ESTIMATED NON-BEARING YEARS' LABOR REQUIREMENTS IN PRODUCING SOME MICHIGAN FRUIT CROPS AND ASPARAGUS.............................................. 149 APPENDIX N: EXPECTED AVERAGE 1970 AND 1980 GROSS REVENUES FROM TEN FRUIT AND VEGETABLE CROPS IN MICHIGAN . . . . vili 150 LIST OF TABLES Table Page 1.1 Hired Labor on Michigan Farms by Farm Type, 1964 ......... 5 1.2 Michigan Commercial Fruit Farms by Economic Class, 1964. . 6 1.3 Trends in Fruit Farm Size— Michigan, 1959-64 ............. 7 3.1 Mean Picking Rate of Workers Surveyed in R.M.C. Worker Productivity Studies for Eleven Crops (Units/Worker Hour)..................................................... 28 Ratio of Michigan Skilled Labor Wage Rate To Piece-Work Labor Wage Rate (1968-69)................................. 29 Piece-Rate Wages Including Other Labor Costs— 10 Rates for 17 C r o p s ............................................. 31 Management Skilled and Full-Time Worker Hourly Wage Rates Including Other Costs— 10 Rates for 11 Crops ............ 32 Summary Description of Mechanical Harvesters Used in Study— 1970 Situation..................................... 40 Summary of Present and Expected Technology in Mechanical Harvesting of 12 Crops— 1970 and 1980 Situations........ 43 Average Prices Received by Michigan Farmers for Eleven Crops (1965-69)........................................... 44 Average Number of Trees per Acre for Six Tree Fruit Crops on Michigan Fruit Farms (1965-69)......................... 48 Estimated Acreage at Which Hand Harvesting Costs Equal Mechanical Harvesting Costs, for 11 Crops at 10 Different Wage Rates, Using 1970 Technology......................... 50 Estimated Acreage at Which Hand Harvesting Costs are Equal to Mechanical Harvesting Costs, for 11 Crops at 10 Different Wage Rates, Using Expected 1980 Technology .............. 51 Equal Harvest Cost Acreage Points with Different Yields for Four Crops at Three Wage Rate L e v e l s .................... 53 3.2 3.3 3.4 3.5 3.6 3.7 4.1 4.2 4.3 4.4 ix Table 4.5 5.1 5.2 5.3 5.4 5.5 5.6 6.1 6.2 6.3 6.4 6.5 6.6 Page Estimated Acreages of Sweet Cherries and Plums Equivalent To One Acre of Tart Cherries at 10 Different Wage Rates, Figured on the Basis of Per PoundSavings Resulting From Harvesting Mechanically asOpposed toHarvesting by Hand . 54 Summary Description of 172 Class I and II Michigan Fruit Farms Surveyed in 1966...................................... 58 Simulated Estimates of Marginal Reduction in Piece-Work Labor Requirements on 172 Large Michigan Fruit Farms by Crops, Using 1970 Technology but no Abscission Chemical for Sweet C h e r r i e s ....................................... 61 Simulated Estimates of Marginal Reduction in Piece-Work Labor Requirements on 172 Large Michigan Fruit Farms by Crops, Using Expected 1980 Technology with an Abscission Chemical for Sweet Cherries.............................. 62 Simulated Estimates of Skilled Labor Needed to Operate Mechanical Harvesters Adopted on 172 Large Michigan Fruit Farms— 1970 and Expected 1980 Situation.................. 64 Simulated Estimated Impact of an Abscission Chemical Intro­ duced in Sweet Cherry Harvesting on 172 Large Michigan ..................................... Fruit Farms. 65 Simulated Estimates of Ranges of Marginal Reduction in Piece-Work Labor Requirements Possible due to Adoption of Mechanical Harvesters on 172 Large Michigan Fruit Farms for Each of Ten Wage Rate Levels, Using 1970 and Expected 1980 Technology Levels ................................... 68 Acreage Devoted to Various Crops on a Synthetic Southwest Michigan Fruit Farm....................................... 78 Approximate Number of Non-Bearing and Bearing Years In­ volved in Growing Eight Crops Grown in Michigan.......... 83 Five Wage Rate Levels and Their Corresponding Wage Costs for Three Types of L a b o r ................................. 85 Estimated Breakeven Wage Rate Levels for 10 Michigan Crops, 1970 and Expected 1980 Technology........................ 87 Estimated 1970 Breakeven Wage Rate Levels and 1969 Prevail­ ing Wage Rates for Hand Harvesting Selected Crops Grown on Michigan Fruit Farms................................... 88 Average Annual Gross Margin Generated on a Synthetic Michigan Fruit Farm at Five Different Wage Rate Levels— 1970 and Expected 1980 Conditions ................................. 89 x Table Page 6.7 Ten Michigan Crops Ranked by Present Value of Future Per Acre Net Revenue Under 1970 Technological Conditions Using 91 Five Different Wage L e v e l s ........................... 6.8 Ten Michigan Crops Ranked by Present Value of Future Per Acre Net Revenue Under Expected 1980 Technological Condi­ tions Using Five Different Wage Levels . . . ......... 92 6.9 Optimum Enterprise Mix at Five Different Wage Rate Levels on a Synthetic Michigan Fruit Farm— Under 1970 Technology. 6.10 6.11 Optimum Enterprise Mix at Five Different Wage Rate Levels on a Synthetic Michigan Fruit Farm— Under Expected 1980' Technology........................................... 94 95 Annual Labor Requirements on a 384.6 Acre Synthetic Michigan Fruit Farm with Optimum Organization at Five Different Wage Rate Levels— 1970 Situation...................... .. 6.12 Annual Labor Requirements on a 384.6 Acre Synthetic Michigan Fruit Farm with Optimum Organization at Five Different Wage Rate Levels— Expected 1980 Situation................. 97 6.13 Total Wage Bill Paid on a Synthetic 384.6 Acre Michigan Fruit Farm, Calculated at Five Different Wage Rate Levels under 1970 and Expected 1980 Technological Conditions. .. A. 1 C.l D.l E.l E.2 E.3 E.4 E.5 96' 98 Average Annual Earnings of Michigan Farm and Manufacturing Workers, 1960-1969 ....................................... Ill Number of Michigan Commercial Fruit Farms by Economic Class— 1959, 1964 and Estimated 1970 ..................... 115 Estimated Labor and Non-Labor Costs in Production of Some Fruits and Vegetables in Michigan for the Late 1960's. .. 116 Hourly and Piece-Rate Labor Cost Calculations for Apple Harvesting........................................... 117 Hourly and Piece-Rate Labor Cost Calculations for Tart Cherry Harvesting. . . . . . . . . . . .............. . . Hourly and Piece-Rate Labor Cost Calculations for Sweet Cherry Harvesting..................................... 119 Hourly and Piece-Rate Labor Cost Calculations for Peach Harvesting................................ Hourly and Piece-Rate Labor Cost Calculations for Pear Harvesting........................................... xi 118 120 121 Page Table E.6 E.7 E.8 E.9 E.10 E.ll F.1 G.l H.l H.2 H.3 H.4 H.5 Hourly and Piece-Rate Labor Cost Calculations for Plum Har ves t i n g ............................................... 122 Hourly and Piece-Rate Labor Cost Calculations for Grape Harvesting............................................... 123 Hourly and Piece-Rate Labor Cost Calculations for Straw­ berry Harvesting......................................... 124 Hourly and Piece-Rate Labor Cost Calculations for Asparagus Harvesting ..................................... 125 Hourly and Piece-Rate Labor Cost Calculations for Cucumber (Pickle) Harvesting ............................. 126 Hourly and Piece-Rate Labor Cost Calculations for Processing Tomato Harvesting ............................. 127 Range of Harvest Dates for Selected Michigan Fruit and Vegetable Crops— Ranked According to Peak Harvest Activity 128 Percentage of Total Sales of Michigan Fruits by Type— Average 1965-1969......................................... 129 Simulated Estimates of Numbers of Mechanical Harvesters Adopted at Ten Different Wage Rate Levels and the Number of Acres Harvested Mechanically on 172 Large Michigan Fruit Farms, Assuming 1970 Technology with No Custom Harvesting................................ 130 Simulated Estimates of Numbers of Mechanical Harvesters Adopted at Ten Different Wage Rate Levels and the Number of Acres Harvested Mechanically on 172 Large Michigan Fruit Farms, Assuming Expected 1980 Technology With No Custom Harvesting......................................... 131 Simulated Estimates of Potential Acreage Harvested Mechanically and Marginal Reduction in Required PieceWork Worker Jobs due to Adoption of Mechanical Harvesters by 172 Large Michigan Fruit Farms, Assuming Machines are Used to Maximum Seasonal Capacity— 1970 Situation........ 132 Simulated Estimates of Potential Acreage Harvested Mechanically and Marginal Reduction in Required PieceWork Worker Jobs due to Adoption of Mechanical Harvesters by 172 Large Michigan Fruit Farms, Assuming Machines are Used to Maximum Seasonal Capacity— Expected 1980 Situation 133 Total Acreage Harvested of Ten Crops in Michigan— 1969 . . 134 xii Table H.6 H.7 I.1 1.2 J.l J.2 K.l K.2 K.3 K.4 K.5 Page Simulated Estimates of Potential Acreage Harvested Mechanically and Marginal Reduction In Required PieceWork Worker Jobs due to Adoption of Mechanical Harvesters by 172 Large Michigan Fruit Farms, Assuming Machines are Used to Maximum Seasonal Capacity but Do Not Harvest Acreages in Excess of 1969 State Total Acreage In Each Crop— 1970 Situation ..................................... 135 Simulated Estimates of Potential Acreage Harvested Mechanically and Marginal Reduction in Required PieceWork Worker Jobs due to Adoption of Mechanical Harvesters by 172 Large Michigan Fruit Farms, Assuming Machines are Used to Maximum Seasonal Capacity but Do Not Harvest Acreages in Excess of 1969 State Total Acreage in Each Crop— Expected 1980 Situation............................. 136 Minimum Piece-Rate Wages Effective September 21, 1970, and Prevailing Piece-Rate Wages Paid During 1969 on Michigan Fruit Farms ..................................... 137 Prevailing Piece-Rate Wages Paid During 1969 on Michigan Fruit Farms with Estimated Hourly Equivalents............ 138 Per Acre Hours of Labor Required in the Production of Ten Michigan Fruit and Vegetable Crops, by Labor Type, Under 1970 Technology........................................... 139 Per Acre Hours of Labor Required in the Production of Ten Michigan Fruit and Vegetable Crops, by Labor Type, Under Expected 1980 Technology ................................. 140 Estimated Per Acre Full-Time (Skilled) Labor Requirements by Two-Week Growing-Season Periods in Producing Six Michigan Fruit Crops— 1970 Situation .................... 141 Estimated Per Acre Full-Time (Skilled) Labor Requirements by Two-Week Growing-Season Periods in Producing Four Michigan Fruits and Vegetables— 1970 Situation .......... 142 Estimated 1980 Per Acre Full-Time (Skilled) Labor Require­ ments by Two-Week Growing-Season Periods in Producing Nine Michigan Fruit and Vegetable Crops, Harvesting Mechanically............................................. 143 Estimated Per Acre Hours of Hourly (Unskilled) Labor Requirements by Two-Week Growing-Season Periods in Producing Six Michigan Fruit Crops— 1970 or 1980 Situation 144 Estimated Per Acre Hourly (Unskilled) Labor Requirements, By Two-Week Growing-Season Periods in Producing Four Michigan Fruit and Vegetable Crops— 1970 or 1980 Situation 145 xiii Page Table K.6 K.7 L.l Estimated Per Acre Hours of Piece-Work (Unskilled) Labor Requirements, by Fifteen Time Periods, in Producing Nine Michigan Fruit and Vegetable Crops, Harvesting Manually Using Average Yields (1960-1969) ........................ 146 Estimated Per Acre Hours of Piece-Work (Unskilled) Labor Requirements, by Fifteen Time Periods, in Producing Nine Michigan Fruit and Vegetable Crops, Harvesting Manually Using Expected 1980 Y i e l d s ............................... 147 Estimated Cash (Non-Labor) Costs in Growing Ten Michigan Fruit and Vegetable Crops (In Dollars per Acre)........... 148 M.l Estimated Hours of Full-Time (Skilled) and Hourly (Unskilled) Labor Required in Growing Seven Michigan Fruit Crops and Asparagus to Bearing A g e ................................. 149 N.l Estimated Average Per Acre Gross Revenue For Ten Michigan Fruit and Vegetable Crops Under 1970 and Expected 1980 Conditions............................................... xiv 150 LIST OF FIGURES Figure 2.1 2.2 2.3 2.4 2.5 5.1 5.2 Page Representation of an Iso-product Contour for Inputs which are Perfect Substitutes............................. 15 Representation of an Iso-product Contour for Inputs which are Perfect Complements............................. 17 Representation of an Iso-product Contour with Decreasing Marginal Rate of Substitution...... ... ................ 17 Representation of Backward Bending Labor Supply Curve Giving Multiple Equilibrium Wage Rates................... 20 Minimum Wage Law and Industry Labor Demand and Supply Elasticity Illustration ................................. 24 Simulated Estimates of Reduced Piece-Work Labor Required On 172 Large Michigan Fruit Farms due to Their Adoption of Mechanical Harvesters as Wage Rates Rise— 1970 & 1980 Situations............................................... 63 Simulated Estimates of Potential Reduced Piece-Work Labor Requirements due to Adoption of Mechanical Har­ vesters on 172 Large Michigan Fruit Farms, Assuming Machines are Used to Maximum Seasonal Capacity but Do Not Harvest Acreages in Excess of 1969 State Total Acreage in Each Crop— 1970 and 1980Situations........... 66 xv CHAPTER I INTRODUCTION The Problem Low Income Among Hired Farm Workers Among the estimated 14 million^ rural poor in America are several thousand low income hired farm workers. When compared with other major occupational groups, these workers on the whole have the lowest level of income in the United States. In 1964, for example, 60 percent of all hired farm worker families had an annual income of less than $3,000.2 Michigan hired farm workers1 annual income for 1964 averaged $2,820, about 40 percent of that realized by manufacturing workers in the same period. Figures for 1969 show some improvement of the rela­ tive position of farm workers in Michigan. Their annual average income was up to $4,308, which was about 50 percent of manufacturing workers' 3 average of $8,669.90. President's National Commission on Rural Poverty, The People Left Behind (Washington, D.C.: U.S. Government Printing Office, 1967), Chapter 1. 2 Arthur Mauch, "Low Income Farmers, Rural Youth, Farm Labor— Problems and Opportunities," No. 7 of People and Income in Rural America: What are the Choices? (Raleigh, N. C . : Agric. Policy In­ stitute, No. Carolina State Univ.). 3 See Appendix A. 1 2 Attempts to Alleviate Poverty Among Farm Workers There have been efforts on the part of both state and federal policy makers to alleviate the problem of low income among hired farm workers. On the federal level, for example, the Congress refused to extend Public Law 78 beyond December 1964, terminating the Bracero Program, in hopes of improving the income position of domestic farm workers. Farm workers have been exempt from most major social legislation until recent years. In 1966, however, the Federal Fair Labor Standards Act was amended to include some farm worker coverage under modified minimum wage provisions. 4 The Michigan State Legislature passed a state minimum wage act in 1964 which extended coverage to most farm workers paid on an hourly basis. This law became effective January 1, 1965. Employees normally paid on a piece-rate basis were exempt until July 31, 1966, to allow time to establish standards for minimum piece-rate wages. Workmen's compensation insurance coverage was extended to Michigan farm workers in 1967, and minimum farm worker housing conditions were estab­ lished by the passage of Michigan Public Act 289 of 1965. Disagreement on Desirability of Minimum Wage Legislation All these institutional changes and others not mentioned here are attempts on the part of public policy makers to alleviate poverty con­ ditions among hired farm workers. However, it is not certain that all of these changes have had or will have the desired effects. Disagree­ ment as to the desirability of an institutional minimum wage is apparent 4 See Appendix B for further detail of existing state and federal minimum wage laws. 3 even among experts. The following quotations illustrate this disagreement. The Commission recommends that the wages and hours provision of the Fair Labor Standards Act be extended uniformly, with the same minimum wage and overtime pay, to all occupations. (Emphasis added.) . . . legislation to establish minimum wages throughout agriculture is an inappropriate public approach to increase the earnings of the rank and file of all farm workers. Although it would benefit some, it would leave others much worse off, and in the process it would increase rather than reduce the poverty among the families of this part of the farm population.^ Objectives For reasons which will be explained later, this study focuses attention on the effects of minimum wage legislation on Michigan's larger commercial fruit farms. It is an attempt to get at the effects of the law on the employment of hired harvest workers on such farms. Assessing the law's impact on fruit harvest mechanization and relative enterprise (crop) profitability is believed to be the best approach by which to reach legitimate conclusions on the impact on farm worker employment. The major objective of this study then is to determine, given certain assumptions, what effect minimum wage legislation may have had and will likely have on Michigan fruit farm hired worker employment (assuming the wage level continues to be raised over time). ^President's National Commission on Rural Poverty, Op. cit., p. 21. ^Theodore W. Schultz, "National Employment, Skills, and Earnings of Farm Labor," published in C. E. Bishop (Ed.), Farm Labor in the United States (New York: Columbia Univ., 1967), p. 55. 4 Specifically the objectives of this study are: 1. To gather together and report essential technical informa­ tion on available fruit harvesters and their expected future progeny, in order to allow for cost comparisons between mechanical and manual fruit harvesting methods. 2. To determine the probable substitution effect (i.e., the substitution of mechanical harvesters for piece-work harvest laborers) of a simulated increase in the minimum wage from $1.00 per hour to $4.50 per hour on a sample of large Michigan fruit farms. 3. To determine the effects of increasing wages on piece-work labor employment and income on a representative synthetic Michigan fruit farm, assuming two levels of available harvest technology. Procedure Reasons for Using Fruit Farms as Basis of Study As indicated in Table 1.1, fruit farms ranked first in Michigan in wages paid to hired farm workers in 1964. the amount of hired labor used that year. They also ranked first in The importance of fruit farms in the use of farm labor in Michigan helps explain why Michigan ranks second among the states (California being first) in employment of migratory workers.^ Seasonal labor is relatively important in fruit production. Mi­ gratory workers made up about 62 percent of the seasonal labor used in Q Michigan during the peak period of 1968. It is generally believed that Daniel W. Sturt, "The Rural Manpower Scene," published in B. F. Cargill and G. E. Rossmiller (Eds.), Fruit and Vegetable Harvest Mechanization: Manpower Implications, R.M.C. Rpt. No. 17 (East Lansing, Michigan: Rural Manpower Center, Mich. State Univ., 1969) p. 190. ^Michigan Employment Security Commission, Michigan Farm Labor Report— Post Season 1968 (Detroit, Michigan, 1969), p. 10. migratory workers as a sub-group rank with the lowest as to level of living among farm workers. 9 It is with this in mind, viz., Michigan fruit farms being a major user of seasonal migratory labor, that fruit farms were chosen as the focal point of this study. TABLE 1.1 HIRED LABOR ON MICHIGAN FARMS BY FARM TYPE, 1964 Farm Type Wages Paid (mil. dol.) Wages Paid (% of Total) Hired Full-Time Man Equivalents Fruit 19.0 32 7.9 Dairy 11.8 20 4.9 Miscellaneous 8.2 14 3.4 Vegetable 4.6 8 1.9 Cash Grain 4.0 7 1.7 Cattle, Hogs, Sheep 3.8 6 1.6 General 3.3 5 1.4 Poultry 1.8 3 0.8 Source: Karl T. Wright, Manning Michigan's Farms— -Trends, Composition and Efficiency, R.M.C. Rpt. No. 15 (East Lansing, Michigan: Rural Manpower Center, Mich. State Univ., April 1969), p. 41; basic data from 1964 Census of Agriculture of Michigan. Reasons for Use of Larger Fruit Farms in the Study As might be expected, hired labor is relatively more important in the production process on the larger fruit farms than on the smaller ones. Wright’s recently published analysis of the 1964 Census of Agri­ culture for Michigan shows that Class I and II fruit farms are the predominant users of hired labor. They paid about 70 percent of the total wages paid by fruit farmers, although they only made up about 25 percent of all fruit farms in Michigan. 9 Mauch, Op. cit. As might be expected, the Wright study shows a similar lopsidedness in product sales for 1964. Class I and II farms accounted for 66 percent of the total product sales during that year.^ TABLE 1.2 MICHIGAN COMMERCIAL FRUIT FARMS BY ECONOMIC CLASS, 1964 Economic Class 11 IV V III VI I II Percent of All Fruit Farms 10 15 22 24 21 7 Percent of Farms in Class Hiring Labor 93 59 25 16 5 0 Percent of All Wages Paid on Fruit Farms 46 23 16 9 4 0 8.81 2.87 1.34 0.74 0.32 Hired Full-Time Man-Equiv. as Percent of Total 89 72 60 54 40 6 Hired Labor Expenses as Percent of Total Expenses 69 63 62 53 52 33 Item Hired Full-Time Man-Equiv.12 per Farm Source: 0.06 Karl T. Wright, Characteristics of Michigan Farms and Farmers by Income Level, Research Bulletin 134 (East Lansing, Michigan: Agric. Experiment Station, Mich. State Univ., 1971), Table D-2, pp. 52-53. Karl T. Wright, Characteristics of Michigan Farms and Farmers by Income Level, Research Bulletin 134 (East Lansing, Michigan: Agric. Experiment Station, Mich. State Univ., 1971), Table D-3. 11The U.S. Bureau of Census classed farms by annual gross income in 1964 as follows: Class I II III Value of Farm Products Sold $40,000 or more $20,000 to $39,999 $10,000 to $19,999 Class IV V VI Value of Products $5,000 to $2,500 to $50 to Farm Sold $9,999 $4,999 $2,499 12 xx0ne full-time man-equivalent is equivalent to a farm operator under age 54 devoting full time to the farm. See Wright, Bulletin 134, p. 2, for a more detailed definition. 7 The trend from 1959 to 1964 was toward the larger fruit farms, as shown In Table 1.3. Census data for 1969 Is not yet available, but there Is little doubt that the direction of the trend has remained the same. TABLE 1.3 Economic Class TRENDS IN FRUIT FARM SIZE--MICHIGAN, 1959-64 Number of Farms 1964 1959 Percent of Total No o 1959 1964 Percent of Total Sales 1959 1964 I 215 413 5 10 25 41 II 678 641 16 15 32 25 III 831 907 20 22 21 19 IV 1,055 992 26 24 14 10 V 1,110 915 27 22 7 5 VI 266 313 6 7 1 0 Source: Karl T. Wright, Characteristics of Michigan Farms and Farmers by Income Level. Research Bulletin 134 (East Lansing, Michigan: Agric. Experiment Station, Mich. State Univ., 1971), Table D-3, p. 57. Because the trend is toward larger fruit farms in Michigan, and because these farms tend to use the larger portion of fruit farm hired labor, this study is based on Class I and II commercial fruit farms. Sample of Large Farms Used as Bench Mark A sample of 172 large Michigan fruit farms was surveyed in 1966 by the Department of Agricultural Economics at Michigan State University (MSU) in cooperation with the USDA, ERS, Farm Production Economics Division. study. The data from that survey are used by permission in this The survey contains the best available data on crop size dis­ tribution on Michigan fruit farms. Two previous studies have been done using the data gathered in the survey.^ Equal Manual-Mechanical Harvest Cost Acreages Technical cost coefficients on mechanical harvesters were gathered through interviews with specialists in the MSU Department of Agri­ cultural Engineering, machinery dealers in Michigan and farmers using the machines, and from the most recent technical papers on the subject. Ten different harvest labor wage rates were chosen, ranging from $1.00 per hour to $4.50 per hour. Piece-rate wages were calculated on the basis of the Worker Productivity Studies done by the Rural Manpower t* '• Center of the Department of Agricultural Economics at MSU. Other cost coefficients were taken from MSU Agricultural Economic Reports for individual crops and from Resource Productivity and Returns in Apple and Tart Cherry Production on Michigan Fruit Farms, an unpub­ lished Ph.D. thesis done at MSU by A. Franklin Bordeaux, Jr., in 1969. Much of Bordeaux's data came from the survey used in this study. MSU Forward Planning Program Number 3 was used in computing the acreage of a given enterprise (or crop) at which mechanical harvesting costs were equal to manual harvesting costs at a given wage rate. These equal harvest cost acreage points (determined for each of the ten wage rates) were then used at each wage level on each of the 172 farms in the survey. Where enough acreage of a given enterprise existed, it was assumed a mechanical harvester would be purchased in order to keep the firm organized with the least cost combination of inputs. *^A. Franklin Bordeaux, Jr., Resource Productivity and Returns in Apple and Tart Cherry Production on Michigan Fruit Farms, unpub. Ph.D. Thesis, Mich. State Univ., Dept, of Agric. Econ., 1969; and Roger P. Hill, Resource Use and Returns on Michigan Fruit Farms, unpub. Ph.D. Thesis, Mich. State Univ., Dept, of Agric. Econ., 1968. For each wage rate, the total worker hours that would be dis­ placed by machines, given a certain level of technology, were calculated. Worker hours were converted to "worker jobs" to facilitate presentation. The number of hours of skilled labor required to run the machines adopted at each wage rate level was also calculated. The potential for custom harvesting at each wage rate level was shown In terms of total seasonal capacity of the machines adopted In the simulated process. Linear Programming and Optimum Enterprise Mix Since the survey analysis showing the substitution effect on input mix did not allow for changes in relative enterprise size as wages increased, a synthetic farm was developed and analyzed using linear programming to determine the changes in optimum enterprise mix as wages were raised. Product prices and average yields for 1970 were developed using USDA publications, viz., Agricultural Prices and Michigan Agricultural Statistics (an annual publication done by the Michigan Department of Agriculture in cooperation with the USDA). Yield estimates for 1980 were taken from MSU Project ’80, Research Report No. 49. •« Cost coefficients were from the same sources used in developing the equal harvest cost acreage points. A pseudo-dynamic linear program was used since most of the crops under consideration were perennials whose lives involved bearing and non-bearing years. The results of the substitution effect analysis done on the 172 farm survey were used as a guide to tell the wage rates at which certain mechanical harvesting would most likely be used (see Table 5.2 of Chapter V). Coefficients on labor requirements and costs were changed along with the objective function each time more mechanical 10 harvesting was Introduced. This was done using five basic wage rate levels (ranging from $1.00 per hour to $5.00 per hour) and two basic levels of technology (1970 and expected 1980). Labor displacement at each wage level, for a given level of technology, was calculated, as was the hired labor total wage bill. CHAPTER II ECONOMIC THEORY AND THE MINIMUM WAGE LAW Theory's Place In Research In looking at the economic theory Involved In the question of minimum wage legislation as It affects fruit farms, It Is Important to bear In mind that theory cannot tell us the length of time required for a given economic adjustment or the exact process or processes involved in the adjustment. Nor can theory tell us the magnitude of the various economic changes that may occur. It can only help us predict relation­ ships and the directions of changes that might occur. is an abstract tool. Economic theory It uses highly simplified categories (e.g., labor and capital) and involves many built-in assumptions making it static rather than dynamic. However, it does give the researcher a starting point in trying to come to grips with socio-economic problems in the real world. The Theory of the Second Best Micro-statics and general equilibrium theories have in the past led economists to recommend certain policies calculated to make the real world more like the theoretical world. In recent years, however, it has been pointed out that there is danger in relying too much on the theoretical best of all worlds to give us the solutions to real world 11 12 problems. This approach. Involving the "theory of second best,"* encourages the use of static economic theory but stresses the Importance or realizing the Impossibility of making the real world conform to all the conditions assumed In theory. And since the world'does not conform to all the assumptions of theory, It cannot be said that the second best of all worlds will necessarily result from using the policies sug­ gested by theory. Origin of the Wage Rate 2 A wage rate is a price for labor, or the rate at which a person's labor is exchangeable for other goods and services. Wage rates exist in the market economy because on the one hand labor is useful, and on the other hand it is scarce. It is useful as an input in the production of goods and services, and it is scarce in relation to the uses to which entrepreneurs want to put it. Minimum Wage Defined A minimum wage law is an act of government intervention into the market which is intended to redistribute income in a more desirable pattern than the market alone does it. It is a symptomatic approach to the problem of the relatively low productivity of some labor. 3 *R. G. Lipsey and K. Lancaster, "The General Theory of the Second Best," Review of Economic Studies (1956-57). 2 For a more basic and thorough discussion of the theory reviewed here, see K. W. Rothschild, The Theory of Wages (New York, 1966). 3 John M. Peterson and Charles T. Stewart, Jr., Employment Effects of Minimum Wage Rates (Washington, D.C.: American Enterprise Institute, 1969), p. 17. 13 Demand for Labor The demand for labor as an Input In production is derived from the demand for the product being produced. Production workers are not hired because their work satisfies any wants of the employer. They are hired because the employer expects to obtain a profit by selling to the consuming public the output produced by the workers. In a perfectly competitive setting, the individual firm cannot affect the level of the wage rate. At the going wage rate (determined on the industry levels), there is an infinitely elastic supply of labor to each individual firm. Given the wage rate, the firm will add units of labor to the other factors of production until the value of the additional output from the last unit of labor input is just equal to its cost— the wage rate. That is to say, the individual firm's schedule of demand for production labor is (as with any other input) that segment of its marginal value product curve which is found in Stage 11^ of the firm's production function.'* Theory tells us that, in a competitive market system, the firm as well as the industry labor demand schedule will have a negative slope. This inverse relationship between the wage rate and the amount of labor demanded implies a tendency for minimum wage legislation to bring about 4 See L. A. Bradford and G. L. Johnson, Farm Management Analysis (New York: Wiley and Sons, Inc., May 1966), pp. 114-16, for a review of Stage II as the area of rational production. "*The reader is reminded that the usual micro-static assumptions hold throughout the discussion unless otherwise stated; i.e., the state of the arts, tastes, habits, customs, the distribution of private real incomes, population, government and non-firm and non-household groups are all fixed; utility functions are independent among people; persons and groups are rational and possess perfect knowledge; consumer units are motivated to maximize satisfaction; producer units are motivated to maximize money profits; atomistic competition exists, etc. 14 some unemployment. Other things being equal, a rise In the wage rate will result in a decline In the total units of labor used in the in­ dustry. This may involve laying some workers off and/or it may involve workers working fewer hours. The price elasticity of demand for labor is a measure of the responsiveness of quantity of labor demanded to changes in the wage rate. If the percent change in quantity of labor demanded is less than its corresponding percent change in the wage rate, the demand for labor is said to be inelastic; and an increase in the wage rate will result in an increase in the total wage bill (units of labor used times the wage rate). Under such circumstances a minimum wage law would tend to redistribute income in favor of labor as a whole.® Determinants of Elasticity of Demand Elasticity of demand for labor is determined by two major forces, (1) the price elasticity of demand for the product being produced, and (2) the technical conditions of the production process, i.e., the elasticity of technical substitution of other inputs for labor. The more inelastic the demand for a final product, the greater the tendency toward an inelastic demand for labor in producing it. The more in­ elastic the elasticity of technical substitution of say capital for labor (i.e., the smaller the degree of substitutability of capital for labor), the greater the tendency toward inelasticity in labordemand. An absolute increase in the wage rate, ceteris paribus, is an increase Any given individual worker's income position may or may not be improved. Some workers may be laid off. Others may take a cut in hours worked and thus income, while still others will experience in­ creased income. But as a group, labor will receive more income with a higher wage than with a lower wage, ceteris paribus. 15 PL in the relative price between labor and capital (— ). Such a change I; iv tr will effect an Increase In the Input ratio (— ) unless the elasticity of L technical substitution of capital for labor Is equal to zero. When the elasticity of substitution Is less than one, a given percent Increase PL K In — will be accompanied by a smaller percent Increase In FK L and the returns from output will be redistributed away from capital (K) and toward labor (L). Figure 2.1 represents the case where units of harvest machine services can be substituted at a constant rate (the elasticity of tech­ nical substitution Is Infinite) for units of unskilled harvest labor. Lu Fig. 2.1 Representation of an Iso-product Contour for Inputs which are Perfect Substitutes (Lu = Units of Unskilled Harvest Labor, M = Units of Harvest Machine Services.) If the contour ab represents say 40 acres of cherries, the farm operator may harvest it with oa units of unskilled harvest labor or with ob units of harvest machine services. The profit maximizing entrepreneur will be Indifferent as to which harvest system he uses if the price ratio 16 between the two Inputs Is as represented by lso-cost curve c (parallel to ab). If, however, the ratio changes such that the price of unskilled harvest labor Increases relative to harvest machine services, as rep­ resented by iso-cost curve d, he will use harvest machine services to harvest his 40 acres of cherries. If the machine harvest services include the purchase of the machine, then as the size of the crop to be harvested increases (decreases), ceteris paribus, the iso-cost curve will become more horizontal (vertical), reflecting a relative decline (increase) in the price of machine services, resulting from more production units over which the constant costs of purchasing the machine can be spread. The "equal harvest cost acreage points" computed in this study are estimates of the volume of a given crop necessary at a given input price ratio to leave the entrepreneur indifferent as to which harvesting system he should use. Figure 2.2 represents the case where units of machine services is a perfect complement for units of skilled harvest labor. elasticity of technical substitution is zero. Here the For every unit of machine services used, whatever the input price ratio, a certain number of units of skilled harvest labor must also be used. Again, if c is the iso-product contour representing 40 acres of cherries and if it is to be harvested mechanically, oa units of skilled labor will be required to use the ob units of harvest machine services. The price ratio be­ tween these two inputs is not important in determining how much of each to use. Figure 2.3, showing the iso-product curve with a decreasing marginal rate of substitution, may be used to represent several 17 different crops on a given fruit farm, some of which may be harvested mechanically and others of which may be harvested by hand. Ls M Fig. 2.2 Representation of an Iso-product Contour for Inputs which are Perfect Complements (Ls - Units of Skilled Harvest Labor, M = Units of Harvest Machine Services.) Lu Fig. 2.3 Representation of an Iso-product Contour with Decreasing Marginal Rate of Substitution (Lu = Units of Unskilled Harvest Labor, M - Units of Harvest Machine Services.) 18 If the Input price ratio were represented by iso-cost curve e, the profit maximizing operator would harvest all his fruit by hand, using oc units of unskilled harvest labor. If, however, the wage rate in­ creases ceteris paribus leaving an input price ratio as represented by that curve touching the iso-product curve at point d, the operator will use ob units of machine services to harvest part of his fruit crops (say his tart cherries, sweet cherries and plums) and oa units of un­ skilled labor to harvest the rest of them (say his apples, peaches and pears). He may harvest all crops by hand; but he cannot harvest all crops mechanically, as indicated by the iso-product curve's not crossing the horizontal axis. On the individual farm firm, harvest mechanization does not take place in incremental steps as would be suggested by a smooth iso-product curve; rather it tends to take place a crop at a time, e.g., first tart cherries, then sweet cherries then plums, etc. The industry iso-product contour will tend to be a smooth curve. Not all the tart cherries in the industry will be harvested mechanically at first; but as the wage rate increases, ceteris paribus, more and more operators will find it to be the least cost method of harvest. Before all tart cherry harvesting is mechanized, some mechanical harvesting of sweet cherries and plums will have started and so on. The proportion of the total unskilled labor accounted for in the industry by those crops which can be mechanically harvested, and the rate at which units of machine harvest are substituted for units of un­ skilled harvest labor in the industry as the minimum wage rate level is raised, will be important determinants of whether such increases will result in increases or decreases in the total wage bill. 19 In summary, micro-static economic theory tells us that imposing a minimum wage on an industry where the institutional wage is above the equilibrium market wage, other things being equal, will result in: 1. a decline in the number of units of labor used by the industry in the production process; 2. an increase in the total wage bill paid by the industry, provided the price elasticity of demand for labor is less than one; 3. a relatively larger share of the returns to output accruing to labor with respect to capital, provided the elasticity of technical substitution of capital for labor is less than one. Labor Supply The number of units of labor (worker hours) available to an in­ dustry at a given wage rate is determined by (1) the number of workers of the type needed in existence and (2) the number of labor units (hours per week) each worker is willing to exchange at the going wage rate. To the atomistic firm this supply is infinite at the going wage rate, but to the industry it is limited; i.e., the industry labor supply curve is positively sloped, except in special cases mentioned later. The individual worker, in attempting to maximize his satisfaction will supply additional units of labor until the utility received from the income derived from supplying the last unit of labor exactly equals the utility derived from the leisure he would enjoy if he didn't supply that last unit of labor. Thus his individual labor supply curve ls dependent upon his utility function, and typically will have a positive slope, but at relatively high wage rates may bend backward (have a 20 negative slope) as he begins to feel he has adequate Income and can now afford more leisure. The aggregate supply curve, that supply curve faced by the industry, is normally shaped in a similar way. At some point it becomes vertical, since there is a limited number of workers and since some workers prefer more leisure to more income as the wage rate rises. As the wage rate continues to rise, the curve acquires a negative slope, reflecting an increasing number of workers who prefer more leisure to more income. This backward bending labor supply curve raises the possibility Q of there being more than one equilibrium wage rate. It is usually assumed that the equilibrium represented at point c in Figure 2.4 is the only relevant equilibrium; i.e., that wages won't get high enough Wage Rate Wa Wb Wc Q^/unit time Fig. 2.4 Representation of Backward Bending Labor Supply Curve Giving Multiple Equilibrium Wage Rates % o t e that, while equilibriums a and c are stable, equilibrium b is unstable; i*e., any wage rate below Wb will gravitate toward Wc, and any wage rate above Wb will tend to move toward Wa. 21 l to make points b and a relevant. But the possibility of there being another equilibrium wage rate above the present one accentuates the Impropriety of flatly stating that a minimum wage law will bring about unemployment. Special Considerations The Effect of Time Time is not a variable in the macro-static world of economic theory. In the real world, its importance in the adjustment process cannot be overemphasized. The shorter the time period allowed for adjustment, the more inelastic the demand for a finished product, the more inelastic the elasticity of substitution and thus the more inelas­ tic the demand for production labor. In the very short run (where many inputs are fixed) the elasticity of demand for labor may be zero (i.e., the demand curve may be vertical), in which case an increase in the wage rate will effect no change in the quantity of labor demanded. As time 9 passes, however, fixed inputs become variable; and thus the elasticity of substitution will begin to become more elastic. A time lag, usually called a recognition lag, is also involved in the elasticity of demand for the product being produced. In the short run, consumers don't recognize a change in relative commodity prices; and thus substitution takes place at a relatively small rate. 9 For a thorough treatise on fixed asset (input) theory, see the soon-to-be-published Overproduction Trap in U.S. Agriculture; A Study of Resource Allocation, World War I to the Late 60*s, Glenn L. Johnson and C. LeRoy Quance, eds., Chapter 3.1. 22 Technological Progress^ Technological progress and time are closely related in the eco­ nomic adjustment process. There may, for example, be no substitute for a certain type of labor when a minimum wage law is passed, but in time there is likely to be some labor-saving technology developed which may greatly alter the effects of the institutional wage on worker income. Institutional Changes There are a number of institutional changes which can and do affect labor in the real world. theory assumes it to be. Government is not really fixed as Besides minimum wage legislation, there are social security, workmen's compensation, restrictions on immigration, required licensing, job corps training, tariffs, etc., all of which can cause shifts in labor demand and/or supply curves. Product Supply Shift A minimum wage law may lead to an increase in product prices. Increased costs for labor may result in some firms (presumably the least efficient) going out of business, effecting an upward shift in the in­ dustry product supply schedule. This tendency will especially be prominent where the demand for labor and the demand and supply for the product are inelastic. The magnitude of this effect will also depend a great deal on the proportion of the total production costs accounted for by labor. The greater proportion of total cost labor is, the greater will be the increase in total production costs corresponding to an increase in the wage rate, unless other inputs can be efficiently ■^For a clear definition of technological progress see Everett E. Hagen, On the Theory of Social Change (111.: Dorsey Press, 1962), p. 11. 23 substituted for labor. Input Cost Proportions and Enterprise Mix It is generally conceded that the greater the proportion of pro­ duction costs attributed to labor, the greater the impact of minimum wage on input substitution. If labor cost is only a minute portion of total costs, the entrepreneur may tend to overlook an increase in the wage entirely. If on the other hand, labor makes up say 50 percent of the total costs of production, as is the case in the production of many fruits, even a few cents increase in the wage rate may make the dif­ ference between realizing a profit or sustaining a net loss. Thus, in such industries one would expect to see a shift away from those enter­ prises (crops) in which other inputs cannot be readily substituted for labor as wage rates rise. Other Non-Wage Considerations There are of course many pressures other than increasing wage rates on entrepreneurs In the real world to cause them to substitute other inputs for labor. In the Michigan fruit industry, for example, there is the difficulty of getting the right amount of labor at the right time for seasonal needs. This problem seems especially bad in years of high employment in the general economy. There is also a social (i.e., public opinion) pressure working on some entrepreneurs. Publicity about farm owner "exploitation" of farm workers may have a great effect on how some owners organize the inputs at their disposal. Whether they are in fact exploiting farm workers is a moot question, but being accused of it may bring great pressure on them to mechanize wherever possible. 24 Summary According to economic theory, the institution of a minimum wage above the equilibrium level, ceteris paribus, leads to: 1. some unemployment: not only are firms in the industry willing to buy fewer units of labor per unit time, but presumably more workers are willing to work at the higher wage level and/or formerly employed workers are willing to supply more labor units per unit time. Panel A d Wra Wm- — Wc Wc- — lm lc 1m' QT/u.t. Panel B lmj lmf Q^/u.t. lc Fig. 2.5 Minimum Wage Law and Industry Labor Demand and Supply Elasticity Illustration In Figure 2.5 the effect of a minimum wage law on two different industries is illustrated. (The scale of corresponding x and y axes of the two diagrams is assumed equal.) In both cases, the segment lc lm' of the x axis represents the amount of unemployment due to increased amounts of labor offered at the higher wage rate. The segments lm lc in both cases represent the amounts of unemployment due to the firms' (equating MVP to Wm) being willing to hire less labor at the higher 25 wage rate. The magnitude of the unemployment depends on the elastici­ ties of demand and of supply of labor. 2. a cost to some workers in the form of lower income, entire loss of income, or in terms of their seeking a job at the higher wage and being unable to find one. 3. an increase in production costs to firms affected. 4. a decrease in the number of firms in the industries affected. since presumably the more inefficient ones will be forced out of business. 5. an increase in prices paid by consumers for those goods and ! services produced by the affected Industries. 6. an Increase in the total wage bills paid by industries with inelastic labor demand curves, and a decrease in the total wage bills paid by industries with elastic labor demand curves. CHAPTER III MICHIGAN HARVEST LABOR PRODUCTIVITY AND POTENTIAL MECHANIZATION A Basic Assumption A major assumption in this study is that per unit non-harvest labor requirements in the production of the various crops are constant. That is, inputs in all activities except harvesting are being used in least cost combination, and the state of the arts is such that the elasticity of technical substitution between them is zero.* Thus, as wage rates rise, the only input substitutions assumed possible are those involved in the harvesting activity of the production process. Pruning, fertilization, spraying, irrigation, etc., are all assumed to be done using the most up-to-date, efficient equipment. This assumption is not entirely unrealistic since the study focuses on relatively large commercial fruit farms, which tend to be highly mechanized and up-todate in their methods of production. Importance of Harvest Labor Costs As will be seen in subsequent chapters, harvest labor accounts for well over half the total labor costs in the production of most of the crops considered. Since labor costs make up most of the production As will be seen later in this chapter, input substitution is also not possible in the harvesting activity of some of the fruit crops considered. 26 costs in all the crops, 2 assuming no mechanical harvesting is done, a change in per unit harvesting costs can make a significant change in total production costs. R.M.C. Worker Productivity Studies "In August 1965 the Wage Deviation Board of the Michigan Depart­ ment of Labor requested that the Rural Manpower Center develop the methodology for obtaining worker productivity data for piecework labor engaged in the harvesting of agricultural crops. Such data were needed to establish minimum piecework rates that would reflect a minimum hourly wage. Subsequently (March 1966), the Rural Manpower Center, under contract with the State Department of Labor, carried out worker produc­ tivity studies on the harvesting of over 20 different fruit and vegetable crops. These worker productivity studies have been used as a basis for calculating the various piece-rates corresponding with each of the ten hourly wage rates used in the analyses of this study. Crops or Enterprises Used in Analyses Sixteen different enterprises or crops were used in the analyses, A list of them follows: 1. 2. 3. 4. 5. 6. 7. 8. Fresh Market Apples Processing Apples Tart Cherries Sweet Cherries Fresh Market Peaches Processing Peaches Fresh Market Pears Processing Pears 9. 10. 11. 12. 13. 14. 15. 16. Fresh Market Prune-Plums Processing Prune-Plums Processing Grapes Fresh Market Strawberries Processing Strawberries Processing Asparagus Pickling Cucumbers Processing Tomatoes See the last row of Table 1.2 in Chapter I, as well as Appendix D. 3 Jack L. Hervey, Charles M. Cuskaden and Daniel W. Sturt, Worker Productivity in Selected Tree Fruit Harvesting, R.M.C. Rpt. No. 11 (East Lansing, Mich.: Rural Manpower Center, Mich. State Univ., 1967), pp. 2-3. Hand picking rates as determined in the R.M.C. Worker Productivity Studies for each of the above crops are given in Table 3.1. TABLE 3.1 MEAN PICKING RATE OF WORKERS SURVEYED IN R.M.C. WORKER PRODUCTIVITY STUDIES FOR ELEVEN CROPS (UNITS/WORKER HOUR)4 Fresh Market Processing Unit of Measurement Apples 8.5 8.5 48 lb. bushels Tart Cherries 1.57 1.57 Sweet Cherries 1.5 Peaches Crop Source Page R.M.C. No. Rpt. No. 11 10 27 lb. lugs 5 17 1.5 24 lb. lugs 5 13 6.1 8.0 48 lb. bushels 11 20 Pears 5.9 5.9 50 lb. bushels 11 26 Prune-Pl urns'* 3.26 3.26 56 lb. bushels 11 29&30 lbs. 12 10 173 Grapes 173 11,18 Strawberries 16.76 14.5 lbs. 4 Asparagus 31.7 31.7 lbs. 3 10 Cucumbers 64 64 lbs. 9 11 9 27 Tomatoes 7.4 9.6 31.746 lb. hampers Wage Cost Calculation To calculate wage costs from the employer point of view, Social Security, Workmen's Compensation, housing and supervision costs were ^A "worker hour" is defined as "one person working for one hour." ^Plums and Prune-Plums were blended on the basis of the variety dis­ tribution shown in the Michigan 1968 tree survey, with 90.94% as the prune-plum variety and 9.05% as the plum variety— Michigan Crop Reporting Service, Mich. Dept, of Agriculture, USDA, "Michigan 1968 Fruit Tree Survey" (Lansing, April 1969). The blend pick rate was calculated as follows: Prune-plum— 90% at 3.5 bu./worker hr.; Plum— 10% at 1.1 bu./worker hr.; 1.1(0.10) + 3.5(0.90) » 3.26 bu./worker hr. The blend of plums and prune-plums will hereafter be referred to as plums. 29 added to the basic wage rate. 4.4 percent. Social Security was figured at the rate of Workmen's Compensation was determined using the December 1, 1970, rate of $5.93 per $100 payroll.** Housing costs were taken from estimates made in Agricultural Economics Reports Nos, 123-127, 162, and 163. These covered housing costs for all the crops except apples, cherries and grapes, which were assumed to be 8 cents per worker hour— equivalent to housing costs for peach harvesters. Supervision costs, except where otherwise stated, were figured on the basis of one full-time supervisor per 40 workers. Supervisors, full-time workers and machine operators were assumed to be receiving $2.50 per hour as compared to worker's present (1968-1969) prevailing wage rate. This price ratio was assumed constant throughout the wage rate calculations. TABLE 3.2 Crop Apples Tart Cherries Sweet Cherries Peaches Pears Plums Grapes Strawberries Asparagus Cucumbers Tomatoes Source: RATIO OF MICHIGAN SKILLED LABOR WAGE RATE TO PIECE-WORK LABOR WAGE RATE (1968-69) Prevailing Piece-Work Wage Rate ($/hr.) 2.50 1.45 1.60 1.60 1.60 1.45 1.68 1.45 1.59 1.59 1.92 Prevailing Skilled Wage Rate ($/hr.) 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 Skilled Wage Rate * Piece-Work Wage Rate (Skilled/Piece) 1 1.72 1.56 1.56 1.56 1.72 1.49 1.72 1.58 1.58 1.28 Michigan Employment Security Commission, Michigan Farm Labor Report— Post Season 1968, pp. 28-31; 1969, pp. 13, 14. Piece' rates converted to hourly rates using R.M.C. Worker Produc­ tivity Studies. ^Michigan Workmen's Compensation Rating Bureau, Detroit, Michigan. 30 Table 3.3 shows the plece-rates the farm operator will have to pay harvest workers at ten different minimum wage levels. These rates In­ clude the amount paid the worker In wages, plus the per unit cost of the other labor cost Items mentioned, viz., social security, workmen's compensation, housing and supervision. Table 3.4 shows the equivalent wage costs for management labor, skilled labor and/or full-time labor. These hourly costs Include the wage paid the worker (increased by the factors shown in Table 3.2), social security and workmen's compensation. It is assumed that these laborers provide their own housing and that the cost of supervising them is so small as to be legitimately disregarded. The differences in wage costs between crops at a given wage rate level reflects the constant price ratio between picking labor and man­ agement or skilled labor. It also reflects the differences between present prevailing piece-rate wages for harvesting the various crops when those rates are converted to an hourly wage rate. In theory piece- rates should all be equal when converted to hourly wages. But in the real world the dynamic setting prohibits the reaching of a constant equilibrium price for all harvest labor. Existing Harvest Machinery^ Apples At present, there is no machine available to Michigan growers which g can satisfactorily harvest apples for fresh market sales. It is thought ^The retail prices, fuel cost estimates, harvesting rates, etc., for the machines described in this section were gathered from personal in­ terviews with agricultural engineers at MSU, machinery dealers in Michigan, and where possible, with Michigan farmers who have used the machines. Technical papers published in R.M.C. Rpt. No. 16 and some unpublished papers were also consulted. Q Everett D. Markwardt, Jordan H. Levin and B e m i e Tennes, "Mechani­ cal Harvesting and Handling for Apples," Fruit and Vegetable Harvest Mechanization: Technological Implications. B. F. Cargill and G. E. Rossmiller (Eds.), R.M.C. Rpt. No. 16 (East Lansing, Michigan: Rural Manpower Center, Mich. State Univ., 1969), pp. 638, 639. TABLE 3.3 Crop Fresh Market Apples Proc. Apples Tart Cherries Sweet Cherries Fresh Market Peaches Proc. Peaches Fresh Market Pears Proc. Pears Fresh Market Plums Proc. Plums Proc. Grapes Fresh Market Strawberries Processing Strawberries Processing Asparagus Pickling Cucumbers Fresh Market Tomatoes Processing Tomatoes Source: PIECE-RATE WAGES INCLUDING OTHER LABOR COSTS— 10 RATES FOR 17 CROPS Dollars per Hour 2.00 2.50 3.00 3.50 4.00 4.50 Units 0.340 0.340 1.873 1.960 0.409 0.409 2.248 2.347 0.474 0.474 2.605 2.720 0.530 0.530 2.975 3.107 0.607 0.607 3.338 3.487 $/bu. $/bu. $/lug $/lug 0.385 0.296 0.479 0.368 0.574 0.440 0.666 0.510 0.761 0.583 0.854 0.654 $/bu. $/bu. 0.358 0.358 0.397 0.397 0.495 0.495 0.590 0.590 0.685 0.685 0.783 0.783 0.880 0.880 $/bu. $/bu. 0.577 0.577 22.00 0.647 0.647 24.80 0.718 0.718 27.20 0.893 0.893 33.80 1.070 1.070 40.60 1.242 1.242 47.00 1.420 1.420 52.60 1.595 1.595 60.40 $/bu. $/bu. $/ton 0.107 0.118 0.132 0.146 0.182 0.218 0.253 0.289 0.325 $/lb. 0.086 0.124 0.136 0.152 0.168 0.210 0.251 0.291 0.333 0.374 $/lb. 3.81 5.45 5.96 6.71 7.44 9.24 11.07 12.83 14.66 16.46 $/cwt 37.80 54.00 59.00 66.40 73.60 91.40 109.60 127.00 145.20 155.20 $/ton 1.00 1.45 1.60 1.80 0.154 0.154 0.777 0.813 0.202 0.202 1.108 1.160 0.223 0.223 1.222 1.273 0.249 0.249 1.369 1.427 0.275 0.275 1.516 1.580 0.197 0.153 0.282 0.218 0.310 0.239 0.348 0.268 0.203 0.203 0.271 0.271 0.320 0.320 0.362 0.362 14.00 0.521 0.521 20.00 0.075 0.511 0.732 0.805 0.903 0.996 1.259 1.486 1.720 1.967 2.192 $/cwt 0.394 0.565 0.620 0.696 0.768 0.984 1.145 1.326 1.516 1.690 $/cwt Appendix E, column under "Equiv. Piece-Rate Cost." TABLE 3.4 Crop MANAGEMENT SKILLED AND FULL-TIME WORKER HOURLY WAGE RATES INCLUDING OTHER COSTS— 10 RATES FOR 11 CROPS 1.00 1.45 3.00 3.50 4.00 4.50 Apples 1.10 1.60 1.77 1.99 2.21 2.76 3.32 3.86 4.42 4.97 Tart Cherries 1.89 2.75 3.04 3.42 3.80 4.75 5.71 6.64 7.60 8.55 Sweet Cherries 1.72 2.50 2.76 3.10 3.45 4.31 5.18 6.02 6.90 7.75 Peaches 1.72 2.50 2.76 3.10 3.45 4.31 5.18 6.02 6.90 7.75 Pears 1.72 2.50 2.76 3.10 3.45 4.31 5.18 6.02 6.90 7.75 Plums 1.89 2.75 3.04 3.42 3.80 4.75 5.71 6.64 7.60 8.55 Grapes 1.64 2.38 2.64 2.97 3.29 4.11 4.94 5.75 6.59 7.41 Strawberries 1.89 2.75 3.04 3.42 3.80 4.75 5.71 6.64 7.60 8.55 Asparagus 1.73 2.53 2.80 3.14 3.49 4.36 5.25 6.10 6.98 7.85 Cucumbers 1.73 2.53 2.80 3.14 3.49 4.36 5.25 6.10 6.98 7.85 Tomatoes 1.41 2.05 2.27 2.55 2.83 3.53 4.25 4.94 5.66 6.36 Source: Table 3.2 and Appendix E, Column 8. 1.80 Dollars per Hour 2.00 2.50 1.60 33 by those concerned with the development of such a harvester that it will eventually Involve a redesigning of apple trees and orchards, as well as development of the actual harvester. Apples for sale in the processing market can be harvested mechani­ cally. A trunk shaker can be used on small to medium sized trees. For the larger traditional sized apple trees, an overhead boom type shaker has been used. The latter is the type used in the analyses of this study, since most of the processing apples in Michigan are still grown on such trees. $20,000. Such a machine can be purchased in Michigan for about It requires four men to operate it and will shake about 10 trees an hour on the average. About a 10 percent loss to yield will M result from excessive mechanical damagej On the average, 90 percent of the fruit on a tree falls when the tree/ is shaken. 20 percent loss to as opposed to harvesting by hand. Thus, altogether, a yield can be expected by using the machinetoharvest Tart Cherries The shake-catch method of mechanically harvesting tart cherries in Michigan has gained wide acceptance over the past few years. used in this study is a trunk shaker. The machine It is estimated that it will harvest about one tree every minute and a half— 40 trees an hour. men are required to operate it. Four Mo loss to yield is sustained by using it as opposed to harvesting by h a n d . ^ Its retail cost of $19,408 Q Loren D. Tukey, "Cultural Practices of Apples as They Relate to Harvest Mechanization, Past, Present, and Future," Op. cit., Cargill and Rossmiller, R.M.C. Rpt. No. 16, pp. 666-668. ^ See Jordan H. Levin, H. D. Bruhn and Everett D. Markwardt, "Mechanical Harvesting and Handling of Cherries," Op. cit., Cargill and Rossmiller, R.M.C. Rpt. No. 16, pp. 677-681. 34 Includes the cost of the shaker and catch frame ($14,200), pump, well and cooling platform ($3,360), and 30 bulk tanks ($1,848). Sweet Cherries Even though mechanical harvesting of tart cherries has become wide­ spread in Michigan, nearly all the state's sweet cherries are still harvested by hand. This can partially be explained by the difficulty in getting all the sweet cherries to fall when a tree is shaken. most that can be expected to fall is 90 percent. as 65 percent. The It may range as low However, an abscission chemical^ has been developed and is being tested by the Food and Drug Administration. be released for use for the 1972 season. It is expected to Its use will cost about $20 per acre. It is assumed in this study that the sweet cherry processors pro­ vide the bulk tanks and brine necessary for harvesting. Thus, the machine retail cost is $14,200. It requires four men to operate and shakes about 40 trees an hour. Without the abscission chemical, a 10 to 35 percent loss in yield results. With the chemical, all of the cherries will fall, but the added cost of applying the chemical (about $20 per acre) is equivalent to about a 2.5 percent loss in yield, as­ suming 76 trees per acre, average yields and a harvesting rate of 40 trees per hour. See Larsen, "Cultural Practices for Cherry Mechanization," Op. cit.. Cargill and Rossmiller, R.M.C. Rpt. No. 16, pp. 691-695. Also see R. T. Whittenberger and R. L. LaBelle, "Effects of Mechanization and Handling on Cherry Quality," Op. cit.. Cargill and Rossmiller, R.M.C. Rpt. No. 16, pp. 707, 708. 35 Peaches^ Many thousands of bushels of the clingstone variety peaches were harvested mechanically In California last year (1970). Some clingstones are produced In Michigan, but most are of the freestone variety. A 5 to 10 percent loss of yield Is expected In attempting to harvest the free­ stone variety mechanically. All peaches harvested mechanically must be sold on the processing rather than the fresh market. The harvester used in these analyses retails at $23,000, requires four men to operate it, shakes about 40 trees per hour, and has a fuel cost of about $1.50 per hour. It is assumed there will be no loss due to bruising In harvesting clingstones, but a 10 percent loss in harvest­ ing freestones. Pears13 There is no harvester presently available to Michigan fruit growers that can be used to harvest pears. A machine is being tested in the South, but bruise damage in its use is enough to cut the yield by 25 percent for even processing pears. This machine, costing about $23,000 retail, and harvesting about 15 trees per hour, was used in these analyses. Fuel costs were estimated at $1.50 per hour. Four men are needed to operate it also. 1 f\ See P. A. Adrian and R. B. Fridley, "Mechanization and Handling of Deciduous Fruits by the Shake-Catch Method," Op. cit.. Cargill and Rossmiller, R.M.C. Rpt. No. 16, pp. 719-726, 728. 19 See L. L. Claypool, J. A. Beutel and A. D. Rizzi, "Cultural Practices with Deciduous Tree Fruits as They Relate to Harvest Mech­ anization," Op. cit., Cargill and Rossmiller, R.M.C. Rpt. No. 16, pp. 737-748. Plums In California prunes (plums with a relatively high sugar content) are almost completely harvested mechanically now. Plums grown in Michi­ gan (sometimes called prune-plums) are not of the prune variety but can also be harvested mechanically. Ten percent of those harvested mechani­ cally for the fresh market are bruised enough to require their sale in the processing market instead. The machine used in this study for plum harvesting is the same as that used in cherry harvesting. It will har­ vest about 25 trees per hour with minimal damage to processing plums. Grapes*** Grape harvesters for the Concord-Nlagara varieties were first used in New York but are presently being adopted by some of Michigan's larger producers. Conventional trellis systems are presently used in Michigan; but a trend toward the Geneva Double Curtain trellis system is expected, since such a system allows for about twice the yield per acre. Both systems may be harvested mechanically. The machine used in these analyses is self-propelled and retails for $28,000. For a complete harvesting system, the producer will need to spend $2,000 each for two tote lifts and $750 for a truck bulk tank, thus bringing the total system investment to $32,750. harvest about 1 acre per hour. machine.*6 The machine will A four-man crew is required to run the Fuel costs are about $1.70 per hour. *^E. S. Shepardson, "Deciduous Tree Fruits— Introduction," Op. cit Cargill and Rossmiller, R.M.C. Rpt. No. 16, p. 715. *"*See all of Chapter XI in Cargill and Rossmiller, Op. cit., R.M.C Rpt. No. 16. *6It will be noticed that the number of persons needed to operate each machine described in this chapter does not include those persons 37 Strawberries No really successful mechanical harvester for strawberries has yet been developed. machines now, 17 Experimental work is being done on several different but so far only about 48 percent of the potential yield can actually be salvaged when a mechanical harvester is used. A 20 per­ cent loss results from the fact that the machine can be used to pick only once during the season, while manual harvesting is done several times as new fruit becomes ripe. Of that which can be picked in a once­ over operation, only 80 percent is actually recovered by the machine; the other 20 percent is dropped and left in the field. Of that actually picked and recovered, only 75 percent is actually worth marketing. other 25 percent is too badly damaged. The On top of this, the harvesters being developed do not cap the berries in the picking process. Those berries harvested mechanically must all go for processing. Many Michigan strawberry producers pick the highest quality berries for the fresh market and the rest for processing. Due to stiff competition from Mexican grown berries, the outlook of the strawberry industry in Michigan is not good. necessary for loading and hauling the fruit out of the field. It is assumed that loading and hauling operations cost the same whether the fruit is harvested mechanically or by hand. ^ S e e all of Chapter IX in Cargill and Rossmiller, Op. cit., R.M.C. Rpt. No. 16, pp. 433-500. See also Dean E. Booster, Dale E.' Kirk, G. W. Varseveld and T. B. Putnam, "Mechanical Harvesting and Handling of Straw­ berries for Processing," Paper No. 70-670 of American Society of Agricul­ tural Engineers, 1970 Winter Mtg., Chicago, Illinois, December 8-11, 1970; and Graeme R. Quick, "A New Approach to Strawberry Harvesting Using Vibration and Air," Paper No. 70-669 of American Society of Ag­ ricultural Engineers, 1970 Winter Mtg., Chicago, Illinois, December 8-11, 1970. 38 Reason for Including Some Vegetables in the Analyses As indicated in Wright's Bulletin No. 134, Table D-3, many larger fruit farms in Michigan do produce some vegetables. also, in many cases, labor intensive enterprises. Vegetable crops are Three vegetable crops are used in this study because they are commonly produced on Michigan fruit farms, and because their presence assists in comparing the effects of increasing wage rates on the profitability of crops which can be pro­ duced on Michigan fruit farms. The three vegetable crops chosen are asparagus, cucumbers, and tomatoes. Each can be harvested mechanically for the processing market. Asparagus^ Sled harvesting of asparagus originated in Michigan only two or three years ago. It involves fastening a sharp blade to the front of an open side of a large box. with a tractor. The box then is pulled rapidly over the field The sharp metal blade cuts the asparagus, and the in­ ertia of the moving box causes the spears to fall back into the box. Harvesting by this method requires a sorting belt and manual sorting after the asparagus is hauled in off the field. Sorting (by size and quality) is done in the field while picking by hand. About a 25 percent loss in yield is sustained by using the sled method of harvesting rather than picking by hand. Two tractors with six sleds are usually employed in the sled harvesting system. Total Investment, assuming the operator already has the two tractors, is $180 for six sleds, and $1,000 for a sorting belt. 18 Four men are required to operate the sleds, and two are Stephen Harsh, Myron Kelsey and James Nelbauer, Economics of Asparagus Production in Western Michigan, Agric. Econ. Report No. 163 (East Lansing, Mich.: Dept, of Agric. Econ., Mich. State Univ., May 1970). 39 $ required to do the sorting. Sorters are paid the same as pickers would be, while sled operators are considered to be skilled workers. costs on the sorting belt are about 45 cents per hour. Variable Fuel costs for the tractors are about 70 cents per hour for both. Cucumbers Mechanical harvesters for pickling cucumbers have already been adopted by some Michigan growers. retails at $16,900. The machine used in this study Fuel costs are $1.50 per hour. 19 It will harvest about one and one-half acres per hour, requiring two men to operate it. Since the machine harvests only on a once-over basis, a 60 percent loss in potential yield can be expected by using it rather than harvesting by hand. Added to this is the cost of planting higher plant population for mechanical harvesting— about $21.55 per acre. Tomatoes 20 Mechanical harvesting of processing tomatoes has been done extensively in California since 1968. 21 The machine used in this study costs $24,755 retail, uses fuel at the rate of about 4 gallons per hour and harvests at the rate of one-half acre per hour. machine, but 16 others are necessary for sorting. wage as handpickers would get. 19 One man operates the Sorters get the same They ride on the machine, sorting as the Cargill and Rossmiller, Op. cit.. R.M.C. Rpt. No. 16, pp. 300, 304. 20 The figures used in this section were obtained from Mr. Charles Paarlberg, Route #1, Box 254, Berrien Springs, Michigan, a tomato pro­ ducer who owns half share of a tomato harvester and has kept accurate records on the costs involved in running it. 21 Coby Lorenzen, "Developments in Machinery of Processed and Fresh Market Tomatoes and Sweet Peppers," Op. cit., Cargill and Rossmiller, R.M.C. Rpt. No. 16, p. 215. 40 machine moves through the field. A yield loss of about 15 percent is sustained by using the machine since it harvests on a once-over basis, whereas hand picking can be done many times throughout the season. Summary A summary of the important information about the machines des­ cribed in this chapter is given in Table 3.5. Maximum harvest capaci­ ties per season are figured using the schedule of approximate harvest periods shown in Appendix F and the rate of harvest. It is assumed that, at a maximum, each machine can be run for 16 hours a day, allowing the remaining time for repairs and maintenance, travel from farm to farm, bad weather, etc. TABLE 3.5 Crop Apples (Proc.) Tart Cherries Sweet Cherries Peaches (Proc.) Pears (Proc.) Plums (Proc.) Grapes (Proc.) Strawberries (Proc.) Asparagus Cucumbers Tomatoes (Proc.) SUMMARY DESCRIPTION OF MECHANICAL HARVESTERS USED IN STUDY— 1970 SITUATION Retail Price ($) Per Hr. % Loss Fuel Costs Due To Damage ($) 20,000 19,408 14,200 23,000 23,000 14,200 32,750 1.50 1.25 1.25 1.50 1.50 1.25 1.70 20 0 2.5 0 25 0 0 17,000 1,180 16,900 24.755 0.50 0.70 1.50 1.00 52 25 60 15 No. of Men to Operate Per Hour Harvest Rate Maximum Seasonal Capacity (Acres) trees trees trees trees trees trees acre 597.3 316.5 252.6 300.0 63.2 81.6 480.0 4 4 4 4 4 4 4 10 40 40 40 15 25 1 2 6 2 17 1/3 10 1.5 1/2 291.5 acre acres ‘ 14,400.0 1,800.0 acres 320.0 acre 41 Future Outlook on Input Substitution Technological changes affecting the demand for harvest labor on Michigan fruit farms in the future will occur in both horticulture and harvest engineering. In tree fruits, the number of trees harvestable per hour is expected to increase. 22 Little or no change is expected in the percent loss due to mechanical damage. Abscission chemicals will probably be approved and in use in sweet cherry harvesting by the 1972 season, allowing mechanical harvesters to gather 100 percent of the fruit in the harvesting activity. Such chemicals are expected also to prove useful in harvesting apples. A mechanical strawberry harvester which will harvest processing berries with only a 25 percent loss to yield (rather than the 52 percent loss experienced with present models) is expected by some to be avail­ able to growers by 1980. On the horticultural side, per acre yields in all crops being con­ sidered here are expected to increase. Improved plant nutrition, pest control, soil management, irrigation and chemical growth and fruiting regulation will probably be major forces in increasing the average yields of tree fruit crops in Michigan over the next 10 years. Improved rootstocks and closer planting distances in new orchards should also have a positive effect on yields. 24 22 Jordan H. Levin, Head of USDA Agricultural Engineering Research, Mich. State Univ. 2^Denisen, Garren, Moore, and Stang, Op. cit.. R.M.C. Rpt. No. 16, p. 491. 24R. P. Larsen, M. Kelsey, P. Wooley, G. McManus, Jr., "Fruit In­ dustries of Michigan," Project *80; Rural Michigan Now and in 1980, Mich. State Univ. Agric. Experiment Station and Cooperative Extension Service, Res. Rpt. No. 49 (E. Lansing, Mich., June 1966), pp. 2-13. 42 Grape yields can be increased by as much as 50 percent by changing from the conventional single curtain per row training to the Geneva Double Curtain system. 25 The average yield for strawberries is expected to increase to as high as 4 tons per acre by 1980. 26 Increases in average yield over the next 10 years will probably be most striking in the vegetable crops being considered. Improved vari­ eties and increased acceptance of improved cultural practices are expected to more than double the average yields in these crops. 27 Table 3.6 summarizes the important details of the two levels of technology used in this study. Table 3.7 summarizes the average product prices used throughout this study for both the 1970 and expected 1980 levels of technology. Data for the averages came from both Michigan Agricultural Statistics and Agricultural Prices as indicated. The latter source was used on pears, plums, apples and peaches in order to get prices for processing and fresh rather than just blend prices as given in Michigan Agricultural Statistics. 25 Nelson Shaulis, "Viticulture and Mechanical. Harvesting of Grape Varieties Grown in New York," Op. cit.. R.M.C. Rpt. No. 16, pp. 584-585. 26 Larsen, Kelsey, Wooley and McManus, Op. cit.. p. 12. 27 C. Nicklow, J. Downs, S. Ries, S. Honma, and R. Lucas, "Michigan's Vegetable Industry," MSU Research Report No. 49, Project *80; Rural Michigan Now and in 1980, pp. 14-22. TABLE 3.6 Crop SUMMARY OF PRESENT AND EXPECTED TECHNOLOGY IN MECHANICAL HARVESTING OF 12 CROPS— 1970 AND 198028 SITUATIONS Percent Loss in Yield, Harvesting Mechanically 1970 1980 Rate of Harvest (Trees per Hour or Acres per Hour) 1970 1980 Estimated Ave. Yearly Yield per Acre 197029 1980 Apples (Proc.) 20 10 10 25 277.2 bu. Tart Cherries 0 0 40 45 2.7 ton (200 lugs) Sweet Cherries 25 0 40 45 2.5 ton (208.3 lugs) Peaches (Proc.) Pears (Proc.) 0 25 0 25 40 15 50 25 163.2 bu. 150.1 bu. Plums (Proc.) 0 0 25 30 Plums (Fresh) 10 10 25 30 Grapes (Proc.) Strawberries (Proc.) Asparagus Cucumbers (Proc.) 0 52 25 60 0 25 25 60 1 0.33 10 1.5 1 0.33 10 1.5 Tomatoes (Proc.) 15 15 0.5 0.5 597.3 954.6 4 ton (296.3 lugs) 316.5 355.0 3.5 ton (291.6 lugs) 252.6 284.2 300 bu. 200 bu. 300.0 63.2 375.0 105.3 3.1 ton (110.7 bu.) 4 ton (142.9 bu.) 81.6 98.0 3.1 ton (110.7 bu. 4 ton (142.9 bu.) 81.6 98.0 480.0 291.5 14,400.0 1,800.0 480.0 291.5 14,400.0 1,800.0 320.0 320.0 3 ton 2.2 ton 15 cwt 5 ton 378 bu. Maximum Seasonal Capacity of Machine 1970 1980 (acres) (acres) 4 4 25 15 ton ton cwt ton 25 ton 12.5 ton (787.5 hamp.) (1,575 hamp.) 28Yield projections from Op. cit.. MSU Project ’80, Res. Rpt. No. 49, pp. 3-12, 14, 16, 19, 20; 1980 machine technology projections from Op. cit., R.M.C. Rpt. No. 16 and personal interviews with Jordan H. Levin, Head of USDA Agricultural Engineering Research, Mich. State Univ. 29Average 1960-69 yields, increased by 10 to 15 percent, as suggested by Wright, Op. cit., Bulletin 134, Table D-2. 44 TABLE 3.7 AVERAGE PRICES RECEIVED BY MICHIGAN FARMERS FOR ELEVEN CROPS (1965-69)30 Crop Apples $3.11/bu. Processing $1.36/bu. Tart Cherries — $238.20/ton Sweet Cherries — $261.20/ton Peaches $3.75/bu. $2.04/bu. Pears $2.895/bu. $2.19/bu. Plums $140.40/ton $99.20/ton Grapes — $118.27/ton 22.64