A Nobel Prize-winning idea: paying horticulture workers a decent wage

The timing is perfect for an economist. The horticulture industry is getting a new $25 per hour minimum wage thanks to a decision by the Fair Work Commission. The ruling, handed down earlier this month, comes just three weeks after the Nobel Prize in economics was awarded to David Card for his research about the impact of minimum wages on employment.

The impact of academic economics on the real world should not be underestimated. Card found, to the surprise of most economists, that raising minimum wages did not reduce employment nor increase unemployment.

Card can feel deeply intellectually proud because he came into a theory-focused discipline and upended it. The basic idea of a demand curve — low prices causing high demand and high prices causing low demand — did not apply in the real world of the labour market that he observed. And observation is the key to his work, which is empirical, not theoretical. Card measured employment in two adjacent US states, one of which raised the minimum wage for fast food workers.

“Our empirical findings challenge the prediction that a rise in the minimum [wage] reduces employment. Relative to stores in Pennsylvania [where wages stayed constant], fast food restaurants in New Jersey [where wages rose] increased employment by 13%,” Card and Alan Krueger wrote in a 1993 study.

This research has taken a while to bear fruit, but it is having an impact all over the United States, where minimum wage rules are finally being introduced. There are 29 US states with minimum wages higher than the pitiful federal minimum wage of US$7.25 an hour.

It is also perhaps echoing through the orchards of Australia, where pay has long been variable and insufficient. Working holidaymakers told researchers they earned 80 cents per punnet of raspberries picked, amounting to $200 for eight or nine hours of work a day, while others said they were forced to pay for waistcoats, with companies deducting chunks of their pay cheques for dirty and broken equipment.

So what will be the impact of this decision on the horticulture industry, defined as all fruits and crops that aren’t broadacre crops, or wine-grapes?

The Fair Work Decision following from the 2018 Harvest Trail Inquiry says it expects several impacts. One, the farmers will need to actively supervise more closely. They can’t rely on the piece rate to help motivate fast pickers and winnow out slow pickers. They need to actively train, supervise, and let go pickers who aren’t up to scratch.

This is likely to be good for measured productivity. If only fast workers are retained, the output per worker will be higher. Of course, it might not be good news for anyone who is a bit slower, for reasons of physique or illness. Tongan community leaders have raised concerns that farm work is the only option for some community members, and are worried they could lose out on work due to their age or physical ability.

The second impact will be, according to the Fair Work Commission, that “some employers will make greater use of automation and machinery to reduce labour costs.”

Horticultural automation is in its early stages, but it exists.

Planting is one thing. Harvest time is where the greatest labour is needed in the horticulture industry. The extent to which automation is possible in fruit-picking and other harvest activities is unclear. Fruit pickers are not just labour, they are also judgment — spotting which fruit are good to pick.

This was another issue for workers. When the fruit was poor, being paid by the punnet meant some workers were making as little as $5 an hour selecting viable cherries.

The combine harvester has taken the place of the scythe in the wheat field, but fruit grows on trees in a more random fashion than seeds grow on a stalk of wheat. They’re also more prone to damage, and therefore it’s much harder to automate the plucking. 

The $25 minimum wage in horticulture might open a few opportunities in robotics, but it seems unlikely that our blueberries will feel the embrace of cyborg fingers any time soon. What it hopefully does is guarantee a more stable income for the human pickers.

It also opens a big opportunity for an Australian economist to take their own shot at a Nobel Prize by measuring what actually happens to employment and automation after the rule takes effect. The rule takes effect after a few more rounds of hearings and should be in effect next year.

So in 2022, I hope to see more economists get away from their computers and out into the strawberry patches.