Two dozen states are raising their minimum wages in 2020. While the federal government’s minimum for all workers remains the same, the feds have hiked one minimum wage in 2020: the Adverse Effect Wage Rate (AEWR) paid to H‑2A foreign seasonal farm workers. Despite the state changes, this rate will still far exceed the federal or state minimum wage in every state in 2020 by an average difference of 57 percent.
The AEWR is the Department of Labor (DOL)-mandated wage for H‑2A seasonal farm workers. Farmers who hire even a single H‑2A worker must also pay the AEWR to every American worker as well if it is higher than what they would otherwise receive. Except for Alaska, each state has its own AEWR, which run from $11.71 to $15.83 per hour in 2020 (based on 15 regions). State minimum wages start at the federal minimum of $7.25 hourly and go to $13.50 in the state of Washington.
In every state, the AEWR far outstrips every state minimum. The average difference between each state’s AEWR and its minimum wage is 57 percent in 2020. In Iowa, Indiana, Kansas, New Hampshire, North Dakota, Utah, and Wisconsin, the AEWR is fully double the state minimum wage. In 2020, DOL is raising the straight average by 5.5 percent from $12.96 to $13.68 hourly. Every state will see the AEWR increase with Ohio seeing the largest increase of 9.5 percent.
The 2020 rate increases continue a 2‑decade AEWR march higher. Since 2000, the AEWR has increased from a nominal wage of $7.21 (straight average) to $12.96. This 80 percent growth in the AEWR has doubled the pace of general price inflation as calculated by the Personal Consumption Expenditures (PCE) Index.
The AEWR is unfair discrimination against farmers who are trying to follow the rules and hire foreign workers legally. It is supposed to reflect the actual hourly wage that farmers are already paying workers. But in practice, this is not the case.
The DOL uses the Department of Agriculture’s Farm Labor Survey of U.S. farmers to calculate the AEWR. To determine the wage, DOL annually divides the total monetary compensation to all farm workers in a region in the prior year by total hours worked. Of course, this wage overlooks differences between localities, detailed job types, skills, and experience, leading to a misleading average.
More importantly, by treating all monetary compensation as “wages,” the AEWR scoops in overtime, hazard pay, bonuses, performance incentives, and all other additional payments. This means that the AEWR artificially inflates the base hourly wage in the following before including these types of extra compensation.
In addition, by pricing out workers with below‐average wages—typically less experienced workers who received less bonus pay—the mandate further inflates wages in each successive year. The AEWR is obviously designed to suppress hiring of foreign farm workers—which is why labor unions and left advocacy organizations argue that the AEWR should increase even more. This is ironic given the common claims that the minimum wages don’t suppress hiring.
This analysis actually understates the difference between the AEWR and the state minimums because farmers who hire H‑2A workers must also provide their workers many other benefits that—unlike most state minimum wages—they cannot deduct even partially from the workers’ wages. DOL requires, for example, that farmers provide housing at no cost to the worker, cover their transportation to and from their home country (or state, for U.S. workers), and daily transit to and from work.
At the end of the day, there is no evidence that hiring foreign workers harms U.S. workers and substantial evidence that unemployed U.S. workers refuse to take H‑2A jobs even though they all have a shot at them first.
The AEWR is a political wage that the administration or Congress should terminate. I have previously written about the Farm Workforce Modernization Act, a bill that now has passed the House that would help rein in the AEWR. If we want to end illegal immigration, we should start by making it easier to hire needed workers legally.