Academic journal article Chicago Fed Letter

Labor Issues Facing Agriculture and the Rural Midwest

Academic journal article Chicago Fed Letter

Labor Issues Facing Agriculture and the Rural Midwest

Article excerpt

Experts from academia, various industries, and policy institutions gathered at the conference to discuss trends in rural and farm labor markets; examine policies that affect nonmetropolitan and agricultural employment (including immigration policies) ; and explore possible strategies to position the Midwest's rural economy and agriculture for prosperous futures.

To frame the conference's conversations, David B. Oppedahl, senior business economist, Federal Reserve Bank of Chicago, pointed out that many midwestern rural communities are jeopardizing their long-term survival by not generating enough well-payingjobs. This reality has prompted new efforts by some of them to broaden and diversify their economic bases (e.g., by transforming themselves into destinations for vacationers and retirees). Moreover, earnings from farm employment remain a key component of rural income in the Midwest, even though off-farm employment is often vital for the livelihoods of many agricultural families. Households associated with large commercial farm operations derive the vast majority of their incomes from agriculture, but do make some income from nonfarm sources; in contrast, "residence" farm households, whose operations are relatively small, get most of their income away from the farm and actually incur losses from farming operations, on average.1 Oppedahl noted that there are many policy issues that are of concern to farming operations of all sizes. For one, the policy debate about immigration is relevant to farmers because many immigrants (whether authorized to be in the country or not) fill agricultural jobs that would otherwise go unfilled. For another, Oppedahl said that improved access to health care resources-particularly effective insurance coverage and health care infrastructure (such as hospitals and clinics)-is critical for the future prosperity of rural areas of the Seventh Federal Reserve District.2

The labor market and monetary policy

In his keynote address, Daniel G. Sullivan, executive vice president and research director, Federal Reserve Bank of Chicago, provided his perspective on the nation's labor market and monetary policy. He highlighted the solid progress in private nonfarm payroll employment over the past six years. However, he pointed out that inflation according to the Personal Consumption Expenditures Price Index has remained below the 2% target3 established by the Federal Open Market Committee (FOMC)-the monetary policymaking arm of the Federal Reserve System. Sullivan noted that appropriate monetary policy would entail raising the federal funds rate target (the Fed's conventional short-term interest rate policy tool) in the coming years. Yet the federal funds rate's future path would depend partly on the return of the inflation rate toward the 2% target, which in turn depends partly on the amount of slack in the labor market. Labor market slack has been shrinking steadily since 2010-as reflected in the unemployment rate declining from its 10% peak in October 2009 to 5% in October 2015. Even though the unemployment rate has begun approaching levels that the Chicago Fed has deemed consistent with the path of the natural rate,4 wage growth has been slow to improve, remaining below levels that would normally be seen as consistent with an economy experiencing an unemployment rate of 5%. Rural areas have lagged the nation as a whole in the downward movement of unemployment, yet rural wage growth has kept up with national wage growth. Labor force participation-another measure of labor slack-has fallen for the LT.S. even more than expected when accounting for long-running demographic trends (such as the movement of baby boomers into retirement ages). Sullivan noted that labor force participation in rural areas mirrored the national trend (yet was higher when adjusted for age, gender, and educational attainment, implying that rural areas have a higher effective share of their residents in the labor force when accounting for differences in population profiles). …

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