Dairies need to be able to manage labor costs and overall cost of production.
Across the United States, annualized growth in wages for 2016-2021 has been 3.6% and is forecasted to be 2.4% for 2021 (1). However, changes in various state labor laws as well as national discussions about increasing the minimum wage could result in a short-term trend for higher labor costs.
While there is a great deal of variability in minimum wage rates from state to state, an even greater variation may occur within states due to local demands for labor and microenvironments that create competition for workers and raise wage rates needed to hire and retain qualified workers. A 2015 Michigan State Extension survey (5) found that a majority of the skilled dairy workers in the survey were paid wages ranging from $10-15 per hour. The rate of pay for dairy workers is likely highly variable depending on geographic location and competition in the local labor market for the dairy. Regardless, the trend for increasing wage rates is likely to create more competition and higher wage costs across several states and geographies. The overall impact of this increasing wage rate trend will be impacted by state labor laws and ultimately any changes in minimum wage at the national level.
When wage rate increases due to changes at either the state or federal level, on-farm impacts are multifaceted. Most obvious is the general increase in labor cost, but other not so obvious changes may include a compression of wage rates across the workforce and less focus on bonuses or incentives. Compression of
After feed costs, labor costs may be the next largest expense on the dairy depending on the situation. Managing labor costs and maintaining labor efficiency are key drivers in net cost of production and overall profitability. Deming, et al. (6) found through modeling research, farms that were more labor efficient were also more profitable. This research focused on seasonal calving and the use of grazing systems, so results may not be widely applicable to all types of dairy farm businesses. Likewise, Ferrazza et al. (7) found that labor efficiency was positively correlated with lower cost of production and higher profitability on a group of Brazilian dairy farms. With changing regulations about minimum pay rate and overtime pay considerations, dairy managers are looking harder at ways to make the best use of workers’ time and improve the
- IBISWorld.com, “Dairy Farms in the US – Wage Statistics 2005–2026.” Accessed March 12, 2021.
- U.S. Department of Labor, “Wage Order for Farm Workers.” Accessed March 12, 2021.
- National Dairy Farm Program, “Human Resources Legal Fact Sheet: California.” Accessed March 12, 2021.
- U.S. Department of Labor, Wage and Hour Division, “Consolidated Minimum Wage Table.” Accessed March 12, 2021.
- Michigan State University Product Center, “Results of the Dairy Employment Survey.” Accessed March 12, 2021.
- Deming, J., et al. “An Examination of the Effects of Labor Efficiency on the Profitability of Grass-Based, Seasonal-Calving Dairy Farms.” Journal of Dairy Science, Elsevier, 27 June 2019.
- Ferrazza, Rodrigo de, et al. “Association between Technical and Economic Performance Indexes and Dairy Farm Profitability.” Revista Brasileira De Zootecnia, vol. 49, 2020, doi:10.37496/rbz4920180116.