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Dairy producers often have difficulty finding qualified help for their operation, but today’s tight labor market has likely made the situation far worse. “Unemployment has reached levels not seen in nearly 50 years, since August 1969,” notes economist Bob Yonkers, analyst with the Daily Dairy Report.

The U.S. unemployment rate hit a nearly five-decade low of 3.7% in November 2018, then inched higher to 3.9% in December. “Today’s workers—despite December’s increase in the unemployment rate—still face the best employment climate of their lifetimes,” says Yonkers. “For employers, though, the situation will likely not improve anytime soon, and finding new or replacement workers will likely only become more difficult.” In December, the U.S. Federal Reserve Bank forecast unemployment would average 3.5% this year, rising to only 3.6% in 2020 and 3.8% in 2021.
 
One way employers can retain and attract workers is to increase wages and improve benefits, says Yonkers. According to the U.S. Department of Labor, not only did average hourly earnings for all workers increase in 2018 to $27.48/hour by December, the value of worker benefits has also increased.

“Employers across the spectrum of industries have been raising wages, benefits, or some combination of both to retain their current workforce and attract new and replacement workers,” Yonkers notes. “And this situation is likely to get worse for employers because 20 states will increase their minimum wage in 2019, and some states have more increases scheduled for 2020 and beyond.”

Demonstrating just how tight the labor market is, the U.S. Department of Labor’s electronic filing system for foreign seasonal guest workers crashed New Year’s Day, notes Yonkers. Within the first five minutes of the new year, requests for 97,800 H-2A agricultural workers—those who work seasonal or temporary positions—were received, even though only 33,000 visas will be available for the 2019 spring and summer seasons, Yonkers notes.

“Due to the current labor shortage, dairy producers should use every effort to retain their current workforce. Finding new employees to replace those who leave could be more difficult than it has been in decades,” Yonkers says. “Since the Federal Reserve expects the tight labor market to continue for the next few years, dairy employers could also continue to explore longer-term strategies, such as investing in labor-saving technologies.”

The situation for dairy processors is similar except they face an additional challenge under Federal Milk Marketing Order regulations. The federal order system sets minimum prices that processors must pay to dairy producers using formulas that include fixed cost allowances, also called make allowances.

 “Unlike any other U.S. manufacturing sector, dairy processors regulated by federal orders cannot protect their margins above the cost of farm milk by raising dairy product prices,” Yonkers says. “The only recourse that dairy processors have available to them to increase wages and benefits without cutting into margins would be to request a federal order hearing to adjust the make allowances.” 

“Reprinted by permission of Farm Journal media, January 2019”

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