Arrests by Immigration and Customs Enforcement (ICE) were up in 2017, but not as dramatically as you might think. What has increased is the visibility of these arrests and the fear that they bring. It is generally believed, without only scant evidence, that undocumented immigrants are leaving the US in large numbers. This would continue a downward trend which started in 2007.
Some people might cheer this action, but as a whole the economy probably isn’t. Undocumented workers do jobs that no one else wants to, for the most part. Their absence means that work is not being done and wages are rising rapidly in areas that have depended on cheap labor for years. There may be signs that this is accelerating and will ultimately spark a high rate of inflation and even shortages.
My friend Amanda Rudelt proposed a theory in a casual conversation. The topic at hand was the strange and spontaneous disaster gripping Whole Foods. Stores have been left empty of inventory, particularly produce, as new owner Amazon forces a new inventory management system on the chain. The system, called Order to Shelf (OTS), was put in to eliminate inventory and waste, and it has done so with a “militaristic” efficiency that broke up relationships with local suppliers.
Amanda speculated that there could be more to it than that, an early warning that the produce market as a whole is in the middle of a major shock that is only now starting to appear.
It appears to be that the way we get fresh produce depends on what you might expect – a healthy supply, constant shipments, and close relationships. Like any modern system, it’s complex and only really breaks when more than one part of it breaks at once. Blaming OTS doesn’t exactly cut it for the Whole Foods debacle as a result. There is likely more to it.
This may be a warning shot. The fresh food production and delivery system may be indeed be very broken. Jobs filled by immigrants, many undocumented, are going unfilled. This is likely to create shortages and potentially sever inflation in the months ahead.
In 2017, there were numerous reports of produce, particularly in California, left to rot in the fields for lack of labor. It’s unclear how widespread the problem is, but one article in the Economist reports that a lemon grower is paying up to $20 per hour for workers to harvest lemons – and finding few takers. Construction jobs simply pay more with better conditions, and the dwindling number of potential workers can be choosy.
Once burned by an inability to harvest their crops, most farmers would respond by planting less the next year.
We have several things going on at once. Fewer crops being planted, or certainly harvested, is an option for produce and other things which need replanting. Groves of trees produce whatever they do, so production cannot be scaled up and down from year to year. One will signal shortages, the other inflation. Both are apparently happening – and shortages will eventually raise prices by supply and demand, if on a slightly longer time scale.
The ability to grow produce is one thing, but getting it to market is another. It has been reported that as many as half of California’s truckers are undocumented workers, hired as independent contractors with little reporting. There is also a shortage of truckers, meaning that those with a job often work unbelievably long hours in violation of all safety regulations.
Long haul trucking in the US is no different. It carries about 70% of the goods and services which come to market. Delays may not be an issue for manufactured items, where inventory can be built up to counter the effects. Produce has to keep moving. Every year there is a demand for 90,000 new long-haul truckers, who net a median pay of $40k per year. That’s about the same rate for harvesting lemons now, and the work is also awful in its own way.
A shortage of truckers, which is clearly the case now, means that what produce we have is facing delays getting to the supermarkets.
How much of this can be blame on the crackdown on undocumented workers? It’s hard to say exactly, but we do know that there is a net need for more workers. This was easily predicted years ago, as the labor market is a strong function of demographics. Retiring Baby Boomers are clearing out many jobs at all skill levels, and the net result is a lot of potential to move up for those who are authorized to work in the US.
The only reasonably solution is more, not less immigration.
The situation generally is going to put more upward pressure on wages. This is a good thing, particularly if you are a long-haul trucker and tired of what feels like a dead-end job. Where this becomes a problem is when the market responds slowly, as it often does to labor shortages, and the slack is not taken up immediately. Food production and distribution is a vital part of the economy – people have this habit of eating every day. Unlike other markets, it can’t mess up.
Getting back to the Whole Foods debacle for a moment, is it really reasonable to say that it was not caused by a badly planned software and management system roll-out? That may well be the main cause for what appears to be a horrifically bad screw-up. But such a system is going to depend on a functioning system that allows just-in-time delivery of goods which are available in sufficient quantity to keep the supply chain functioning.
The inability to implement a distribution management system may well be a sign that the distribution system itself is failing, and is only cobbled together by constant scrambling through networks built on personal relationships by individual local managers. Attempts at creating a centralized management would be doomed in such a system no matter what. And the Whole Foods debacle may indeed be a sign that the system of producing and distributing fresh food is at the very least under a tremendous amount of strain.
That may well be because the source of cheap labor that it depended on, undocumented workers, is completely falling apart as fear from high-profile ICE raids takes hold.
In any case, this is very much worth watching. More failures and more stores would show that there is indeed a systemic problem. It can only be inflationary in a way which particularly spooks consumers. Food shortages, in particular, are something which Americans are simply not used to, and they affect everyone.
Is the crackdown on undocumented workers causing large systemic problems? Given a greater need for workers and shortages already showing up last year, the answer has to be yes. Exactly how it will be felt is not clear, but we may already be seeing signs of how this will ripple through the economy. The system, as we know it, is not faring well so far.