Labor markets: A critical link between global-local shocks and their impact on agriculture

By Srabashi Ray1, Iman Haqiqi1, Alexandra Hill2, J Edward Taylor3, Tom Hertel1

1. Purdue University 2. Colorado State University 3. University of California, Davis

We show the importance of explicitly modelling agricultural labor markets in Integrated Assessment Models (IAMS). We propose the SIMPLE-G-CZ model building on SIMPLE-G and literature on CZs.

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Version 1.0 - published on 29 Mar 2023 doi:10.13019/5C15-K630 - cite this

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Labor markets can shape the impacts of global market developments and local sustainability policies on agricultural outcomes, including changes in production and land use. Yet local labor market outcomes, including agricultural employment, migration and wages, are often overlooked in Integrated Assessment Models (IAMs). The relevance of labor markets has become more important in recent decades, with evidence of diminished labor mobility in the United States and other developed countries. We use the SIMPLE-G (Simplified International Model of agricultural Prices, Land use, and the Environment) modeling framework to investigate the impacts of a global commodity price shock and a local sustainable groundwater use policy in the United States (US). SIMPLE-G is a multi-scale framework designed to allow for integration of economic and biophysical determinants of sustainability, using fine-scale geospatial data and parameters. We use this framework to compare the impacts of the two sets of shocks under two contrasting assumptions: perfect mobility of agricultural labor, as generally implicit in global IAMs, and relatively inelastic labor mobility ("sticky" agricultural labor supply response). We supplement the numerical simulations with analytical results from a stylized two-input model to provide further insights into the impacts of local and global shocks on agricultural labor, crop production and resource use. Findings illustrate the key role that labor mobility plays in shaping both local and global agricultural and environmental outcomes. In the perfect labor mobility scenario, the impact of a commodity price boom on crop production, employment and land-use is overestimated compared with the restricted labor mobility case. In the case of the groundwater sustainability policy, the perfect labor mobility scenario overestimates the reduction in crop production and employment in directly targeted grids as well as spillover effects that increase employment in other grids. For both shocks, impacts on agricultural wages are completely overlooked if we ignore rigidities in agricultural labor markets.

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The .zip archive file contains the SIMPLE-G-CZ model code, all input files and R-code to replicate the model results in the paper Ray et al (2023) available at, DOI: 10.1088/1748-9326/acb1c9