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 Center information
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 Model results

Group Title: Policy Brief Series - International Agricultural Trade and Policy Center. University of Florida ; no. 06-04
Title: Consumer boycotts and farm labor welfare : a multi-level market analysis
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Permanent Link: http://ufdc.ufl.edu/UF00089781/00001
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Title: Consumer boycotts and farm labor welfare : a multi-level market analysis
Series Title: Policy Brief Series - International Agricultural Trade and Policy Center. University of Florida ; no. 06-04
Physical Description: Book
Language: English
Creator: Palacios, Jamille
Emerson, Robert D.
VanSickle, John J.
Publisher: International Agricultural Trade and Policy Center, Institute of Food and Agricultural Sciences, University of Florida
Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2006
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Table of Contents
    Front Cover
        Page i
    Center information
        Page ii
    Title Page
        Page iii
        Page 1
        Page 2
        Page 3
        Page 4
        Page 5
    Model results
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
Full Text

PBTC 06-04

I ional Agricultural Trade and Policy Center

Consumer Boycotts and Farm Labor Welfare:
A Multi-Level Market Analysis
Jamille Palacios, Robert D. Emerson, and John J. VanSickle

PBTC 06-04 July 2006




Institute of Food and Agricultural Sciences




The International Agricultural Trade and Policy Center (IATPC) was established in 1990
in the Institute of Food and Agriculture Sciences (IFAS) at the University of Florida
(UF). The mission of the Center is to conduct a multi-disciplinary research, education and
outreach program with a major focus on issues that influence competitiveness of specialty
crop agriculture in support of consumers, industry, resource owners and policy makers.
The Center facilitates collaborative research, education and outreach programs across
colleges of the university, with other universities and with state, national and
international organizations. The Center's objectives are to:

* Serve as the University-wide focal point for research on international trade,
domestic and foreign legal and policy issues influencing specialty crop agriculture.
* Support initiatives that enable a better understanding of state, U.S. and international
policy issues impacting the competitiveness of specialty crops locally, nationally,
and internationally.
* Serve as a nation-wide resource for research on public policy issues concerning
specialty crops.
* Disseminate research results to, and interact with, policymakers; research, business,
industry, and resource groups; and state, federal, and international agencies to
facilitate the policy debate on specialty crop issues.


Jamille Palacios
International Agricultural Trade and Policy Center
Food and Resource Economics Department
PO Box 110240
University of Florida
Gainesville, FL 32611

Robert D. Emerson
International Agricultural Trade and Policy Center
Food and Resource Economics Department
PO Box 110240
University of Florida
Gainesville, FL 32611

John J. VanSickle
International Agricultural Trade and Policy Center
Food and Resource Economics Department
PO Box 110240
University of Florida
Gainesville, FL 3261

Selected Paper prepared for presentation at the American Agricultural Economics Association
Annual Meeting, Long Beach, California, July 23-26, 2006

Copyright 2006 by Jamille Palacios, Robert D. Emerson, and John J. Vansickle. All rights
reserved. Readers may make verbatim copies of this document for non-commercial purposes by
any means, provided that this copyright notice appears on all such copies.



We examine the recent boycott activity against Taco Bell initiated by the Coalition of

Immokalee Workers (CIW) in Florida. The purpose of the boycott was to increase wages for

harvest workers. Taco Bell eventually reached an agreement with the CIW to pay workers an

additional penny per pound for tomatoes being sold to Taco Bell. Since that agreement, the CIW

is now negotiating with other fast-food buyers of tomatoes with the intent of establishing

additional agreements with increased wages.

Boycotts were conducted against California wine grapes and table grapes in the 1960s.

By targeting sensitive branded products, labor contracts were concluded with a number of

wineries. Wyeth's analysis of the table grape boycott by contrast suggested there was little effect

on overall consumption. Buyers used the boycott to extract a lower price from the growers,

leading some larger growers to sign labor contracts, although they were not long-lived. Carter, et

al. conclude that the 1979 strike against California lettuce growers resulted in increased rather

than reduced profits for the industry given the characteristics of the product and labor markets.

A unique characteristic of the Taco Bell agreement is that it is between the retail firm

(Taco Bell) and harvest labor. The final product is readily identifiable by the consumer, while

the tomatoes going into the final product are not be readily identifiable. Consequently, a boycott

is likely to be much more successful. Although growers are the employers of the labor, the

bargaining was between the buyer of their product and the labor group.

The questions addressed in this paper are related to the economics of the recent boycott

strategies and the possible impacts of the agreements on labor and the industry. Gardner's


approach to analyzing multi-level markets is used to address the linkage between Taco Bell,

growers, and labor. Since the labor market becomes segmented into labor in the agreement and

labor outside the agreement, we utilize Welch's technique for dealing with segmented markets.


Gardner's multi-level market model is commonly used to measure effects resulting either

from an exogenous shock to one level of the industry, or from shocks due to policy changes.

Analogous to a public policy instrument, the wage supplement introduced an exogenous shock to

the system. Consumer boycotts affect consumers' preference toward the products sold by the

targeting firm, the effect on sales and profits of the targeted firm will depend on the information

content consumers receive and their value toward it.1 A decision of agreement between the

boycott organizers and the targeted firm is assumed to be based on rational behavior, in which

both agents are optimizing. The distortions caused by a boycott and an agreement to terminate a

boycott are analyzed using Gardner's multi-level market model assuming both measures are

exogenous shocks to the system.


The first assumption of the model is that the industries at the retail and farm levels are

competitive and optimizing agents. Also, both levels of production are characterized by only

two inputs and one output. At the retail level the output is represented by (y (tacos)) and the two

inputs are the farm product in question (X (tomatoes)) and an aggregate of the rest of the inputs

(c). At the grower level, the output is the retailer input in question (X (tomatoes)), and the two

inputs are labor (L) and the remaining inputs aggregated together as (b). The final assumption is

that the representation of technology or the production function of both industries is such that

1 For more on the information role in consumer boycotts see, Robert Innes (2006).

there exists a unique least-cost technology to produce, implying linear homogeneity. The retail

and farm level agents are assumed to maximize their respective profit functions:

(1.0) Max. RT = PyY- PX- Pc +A R[Y f(X,c)]

(2.0) Max. Fi = PX -PLL Pb + AF[X ((L,b)]

In the retail level maximization problem (1.0), Pc, P ,andPy, are the prices of the inputs c and X,

and the output Y. In the farm level maximization problem (2.0), PL Pb, and Px are the prices of

inputs L and b, and output X (used as an input at the retail level). The parameters A i are the

Lagrange multipliers for the constraints associated with well-behaved production functions at

both levels, f(X, c) and cp(L, b).

The boycott against Taco Bell is represented by the introduction of PyB in the profit

maximization equation as in (la):

(1.a) Max. /R = PY PyB P CX Pc + AR[Y f(X, c)]

The B in the 1.a profit maximization problem represents the final product boycott quantities.

The first order conditions are totally differentiated and converted to percentage changes to

determine the effect of the exogenous variable, B, on the endogenous variables in the system.

The following is the system of equations derived from the profit maximizing first order

conditions (FOC).

(1.1) y = f(x,c) (2.1) X =((L,b)

(1.2) Pc = fP, (2.2) PL = LP

(1.3) Pc = fcPy (2.3) Pb = bP

(1.4) c = g(Pc) (2.4) L =h(PL)

(1.5) y = D(P,)-B (2.5) b =i(P)

Equations 1.1 to 1.5 correspond to the retail level profit maximization FOC and equations

2.1 to 2.5 correspond to the grower level. These ten equations are totally differentiated and

converted to percentage changes. The resulting percentage change equations represent

percentage change (E.) in the quantities and prices of thejth output and ith inputs for both levels

(Y, X, c, L, b, Py, Px, Pc, PL, and Pb), and are the endogenous variables of the system. Dividing

these equations by the percentage change in the exogenous boycott quantity and defining

EB=dB/Y, we obtain the following ten simultaneous equations:

Ey Ex Ec
(1.6) =K x +K Ex EL Eb
EB EB EB (2.6) =KL -+K
EP, K, Ex K, Ec EP, EB EB EB
(1.7) + + EP Kb EL K Eb EP
EB oy EB ay EB EB (2.7) L + Eb--+
EB c, EB o, EB EB
EP, K Ex K Ec EP
(1.8) EPb KL EL KL Eb EPx
EB a EB c EB EB (2.8) b L
EB cx EB cc EB EB
Ec E P
(1.9) EL EPL
EB o EB (2.9) -=eL-
(1.10) Ey EP EB Eb EI
EB EB EB (210) EB EB

The agreement reached between Taco Bell, the growers, and CIW was for Taco Bell to

pay an extra penny per pound of tomatoes with the intent that it would go to the workers. The

retail profit maximization problem in this case becomes:

(1.b) Max. R = PY --PX -sX -Pc +R[Y f(X,c)]

The s in 1.b represents the per unit supplement paid by the retailer to the growers. The

modification of the maximization problem implies a modification in the set of simultaneous

equations to be solved. The FOC of this new problem modifies equations (1.2) and (1.5) to

become Pc = fxP, s and y = D(P,), respectively. Again, totally differentiating the system and

converting to percentage changes in the endogenous variables with respect to a percentage

change in s, where Es=ds/Px, results in the following system of equations:

Ey Ex Ec
(1.6) = Kx -+K, Ex EL Eb
Es Es Es (2.6) = K +Kb
EPx K Ex K Ec EP Es Es Es Es
(1.7) X+ + -- EP K EL Kb Eb EPx
Es a, Es a, Es Es Es (2.7) L + +
Es o- Es oc Es Es
EP1 K Ex K Ec EP
(1.8) X x + EP, KEL K Eb EPY
Es Cr Es Cr Es Es (2.8) b+L
'Es os Es ax Es Es
Ec EPc
(1.9) e e EL EPL
Es c Es (2.9) = eL
Es Es
(1.10) Ey E (Eb E=
Es Es (2.10) Es b Es

Note that the system of equations to be solved requires knowledge of factor shares, factor

supply elasticities, final product demand elasticity, and elasticities of substitution (Allen

elasticities). The letter e in equations 1.9, 2.9, and 2.10 represents supply elasticities of the ith

inputs c, L, and b, respectively. The Ks (in 1.6 to 1.8 and 2.6 to 2.8) are the relative factor shares

of the inputs at each level. The sum of the relative input shares within a level must equal one,

Kx +K, = 1 and KL +Kb = 1. The a, in equations 1.7, 1.8, 2.7, and 2.8 represent the elasticity

of substitution between the inputs, while producing Y or X. Finally, r in equation 1.10 is the

product demand elasticity for the retail level output. The long run equilibrium solutions are

obtained given alternative assumptions about the various underlying parameters and shares in the

system given knowledge of the industries. Alternative specifications regarding the parameter

values are examined.

Parameter values

The values of the parameters in the system are assumed based on knowledge of the

industry. For instance, the demand elasticity for the retail level product is assumed to be fairly

elastic, as well as the supply elasticities of the factors of production. The Allen elasticities of

substitution are assumed to be equal to one. Table 1, shows the assumed values of the


Table 1 Parameter Values

Elasticities Shares
ec = 5 kc = 0.950
eL = 5 kL = 0.330
eb = 5 kb = 0.667
ox = 1 kx = 0.050
Cy = 1
17 = -5_

The share of tomatoes to the total cost is assumed rather small, .05. 2

Model Results

The two systems of ten equations were solved numerically3. The percentage change in

each of the endogenous variables with respect to a percentage change in the boycotted quantities

or supplement amount resulted from Gauss are given in the Table 2.

2 According to Taco Bell's web page, the main inputs for taco production are lettuce, flour and corn shells, meat,
cheese, and beans. Taco Bell buys 10 million pounds of tomatoes from Florida in a year compared to 555 million
pounds of other main food factors. Considering the corresponding average prices reported in USDA NASS, and
other inputs used in the taco production by Taco Bell the share of Florida tomato input is assumed to be rather small,
perhaps optimistic here.
3 The solutions are readily calculated from X=A1 (b), where A is the nxn parameter values matrix, X is a column
vector of percentage changes for the endogenous variables, and b is the column vector of n-1 zeros and a 1
corresponding to the exogenous shock in question, using matrix software such as Gauss.

Table 2 Boycott and Supplement Model Results

Effect Exogenous Shock

Boycott Supplement

Ey/E* -0.50 -0.13

EPy/E* -0.10 0.03

Ec/E* -0.50 -0.08

EPc/Eo -0.10 -0.02

EX/E* -0.50 -0.92

EPx/E* -0.10 -0.18

EL/E* -0.50 -0.92

EPL/E* -0.10 -0.18

Eb/E* -0.50 -0.92

EPb/Eo -0.10 -0.18

Note that all of the effects on the endogenous variables are negative except for the effect

on the price of the retail output y in the presence of the supplement. The absolute values of the

elasticities at the retail level are larger in the presence of a boycott than the supplement. The

reverse is true at the grower level: the absolute values of the elasticities are greater in the

presence of the supplement than with a boycott.

There are shifts in the demand curves for the retail level final product as well as for the

tomatoes at the grower level (Figure Al). First, the boycott shifts downward the demand at both

levels, from D1 to D2. Then the supplement agreement shifts the demand curves upward at the

retail level, but downward at the grower level. The upward shift in the demand for tomatoes at

the retail level resulting from the supplement agreement is not enough to bring the demand curve

back to its original position. Because of the boycott and the supplement agreement, the quantity

of tomatoes demanded by Taco Bell is reduced, from Xe to Xa in figure Al. This reduction is

larger than the reduction in the quantity of tacos demanded after the agreement, shifting from Ye

to Yb,. In addition, there is a decrease in the supply price of tomatoes from Pe to P*.

The intent of the Taco Bell agreement is that the extra penny per pound of tomatoes is

paid to workers harvesting Taco Bell tomatoes as a wage increase. The price paid by Taco Bell

to its Florida tomato suppliers is represented by P, in the lower part of figure Al Since Taco

Bell pays the supplement, its unit cost of tomatoes rises. Consequently, a percentage increase in

the supplement reduces the quantity of tomatoes demanded by Taco Bell, and reduces the supply

price to growers.

Sensitivity Analysis

It is noteworthy that the model results for quantities and price of tomatoes facing a

supplement were the same as for quantities and price of labor. That is due to the assumed values

of the parameters, particularly the supply elasticities. The original values for the supply

elasticities of the two inputs at the grower level and the input other than tomatoes at the retail

level are equal. Therefore, a change in one of these supply elasticity values should bring about

new and different results for the two pairs of endogenous variables of interest. A reasonable

change in one of these parameters is on that associated with the non-labor input at the grower

level, eb. The input other than labor at the grower level might be assumed less elastic because it

includes, among other things, land, which tends to be an inelastic factor of production. A less

elastic value for eb "ceteris paribus" might be 2. Table 3 shows the model results for a

supplement percent change on the endogenous variables using the original parameter values and

the new value for eb "ceteris paribus".

Table 3 Supplement Model Result Comparison from Supply Elasticity Changes

Endogenous Results for eb Values
Variables 5 2
EPy/Es 0.025 0.021
Ey/Es -0.125 -0.107
EPx/Es -0.183 -0.302
EX/Es -0.917 -0.783
EPc/Es -0.017 -0.014
Ec/Es -0.083 -0.071
EPL/Es -0.183 -0.181
EUEs -0.917 -0.905
EPb/Es -0.183 -0.362
Eb/Es -0.917 -0.724

A change in the parameter eb resulted in different effects for prices and quantities of

tomatoes and labor, as expected. With the new parameter value, a percentage change in the

supplement will reduce the price and quantity of tomatoes by .30 and .78 percent, respectively.

In the case of labor, a percentage change in the supplement will reduce wage rate and

employment by .18 and .90 percent, respectively.

Perfectly elastic labor supply

Although arguments about labor availability are contentious, the relatively small

component that tomato harvesting is of the total labor market in the presence of a continuing

supply of foreign workers suggests that a relevant case to consider is a perfectly elastic labor

supply. In this case PL is taken as given, and the labor supply equation in (2.4) drops out of the

system, leaving the model with nine equations instead of ten. The results for this limiting case

are shown and compared with the original model results in Table 4.

Table 4 Limiting Case Model Results vs. Original Values

eL=5 eL=oO
Ey/Es -0.13 -0.13
EPx/Es -0.18 -0.12
EPo/Es -0.02 -0.02
Ec/Es -0.08 -0.09
EPy/Es 0.03 0.03
Ex/Es -0.92 -0.98
EPI/Es -0.18 n/a
EPJEs -0.18 -0.18
EI/Es -0.92 -1.11
Eb/Es -0.92 -0.30

The result of a perfectly elastic supply of labor at the grower level is a larger decrease in

employment and equilibrium quantity of tomatoes for Taco Bell, but a smaller decrease in the

supply price of tomatoes. The primary effect at the retail level is a higher cost of tomatoes (since

the supply price falls less), and, of course, the larger reduction in equilibrium quantity of

tomatoes purchased.

Changes in Demand Elasticities

Changes in the demand elasticity for the final product at the retail level, "ceteris paribus",

are not greatly different than the original ones. As shown in table 5, all effects except retail price

are accentuated as product demand becomes more elastic, and are diminished as it becomes less

elastic. As expected, the less elastic is product demand, the greater the effect on retail price, and

vice versa.

Table 5 Result Comparison from Demand Elasticity Changes

Endogenous Resultsfor r Values Change in Results
Variables -2.50 -5.00 -10.00 5 vs 2.5 5 vs 10
Ey/Es -0.083 -0.125 -0.167 -0.042 0.042
EPx/Es -0.175 -0.183 -0.192 -0.008 0.008
EPc/Es -0.008 -0.017 -0.025 -0.008 0.008
Ec/Es -0.042 -0.083 -0.125 -0.042 0.042
EPy/Es 0.033 0.025 0.017 -0.008 0.008
EX/Es -0.875 -0.917 -0.958 -0.042 0.042
EPL/Es -0.175 -0.183 -0.192 -0.008 0.008
EPb/Es -0.175 -0.183 -0.192 -0.008 0.008
EL/Es -0.875 -0.917 -0.958 -0.042 0.042
Eb/Es -0.875 -0.917 -0.958 -0.042 0.042

No Restrictions on the Use of the Supplement

Suppose now that the agreement does not restrict the disposition of the wage supplement

by Taco Bell to the growers. As before, the pre-agreement quantities that Florida tomato

growers supplied are represented by Xe in Figure A4. The original price per pound of tomatoes

is represented by Pe. The supplement paid by Taco Bell can be seen as an increase in the

equilibrium price of tomatoes from Pe to Ps. The difference is that in the absence of restrictions

on the distribution of the supplement, supply price and demand price for tomatoes are now the

same at Ps. At the higher price the new equilibrium quantity of tomatoes is Xa, the same as in the

presence of restrictions on the supplement distribution.

A measure of the loss to Taco Bell from paying the supplement is represented by the

areas (a) and (b) to the left of the demand curve between the two price lines. Note that the

vertical distance Ps-P* represents the penny per pound supplement paid by Taco Bell. Area (a)

represents the increased cost of tomatoes to Taco Bell due to the supplement paid for Florida

tomatoes purchased by Taco Bell. Area (b) represents the loss to Taco Bell of buyers' surplus

due to the reduced quantities purchased. Area (a)+(d) is the total supplement paid at the new

quantity, but only area a is a gain since area (d) was part of producer surplus prior to the

agreement. Growers also lose area (c) from the reduced quantity. The growers' gain is (a) -(c).

This is the rent resulting from the right to sell tomatoes at the higher price. Whether or not the

grower gains or loses depends on whether or not (a) is greater than equal to or less than area (c).

Under the assumed profit maximizing scenario, growers would only distribute all or part of the

area (a)+(b) to workers as an act of good will. Since the agreement established a mechanism to

transfer the supplement directly to farm workers, the above is only included for comparison.

Restrictions on the use of supplement

The Taco Bell agreement establishes a procedure to safeguard the extra income transfer

to workers, including a list with specific names of the workers that will receive an extra wage

payment.4 This agreement includes specific provisions on the use of the additional cent per

pound of tomatoes, such that only tomato workers who pick tomatoes supplied to Taco Bell

receive the wage increase. The effect is to segment the labor market into labor working under

the agreement and labor working outside the agreement. The effects will differ for the two


Just, Hueth, and Schmitz (2004) suggest a model describing market effects from

unionization outcomes by separating the labor market into unionized and non-unionized

segments. Although collective bargaining agreements apply only to the unionized employers,

the agreements are typically expected to alter the wage and employment equilibrium for non-

unionized employers. Their analysis assumed a perfectly inelastic labor supply, an untenable

assumption for the labor market under consideration.

A related model by Welch (1976) analyzes employment and wage effects on a non-

covered segment due to a wage stipulation covering a specific labor segment. He assumed a

positively sloped supply curve, and is a reasonable approach for analyzing supply adjustments in

the labor market from segmented provisions and long-run wage effects. The complication raised

4 These stipulations on the use of the extra income convey additional costs to Taco Bell in addition to the
supplement. Also, from the "Supplier Code of Conduct" established by Taco Bell, it seems that Florida growers will
have some transaction costs to be able to continue being tomato suppliers to Taco Bell (Taco Bell web page).
According to one of the most informative publications in regard to the Taco Bell agreement and other recent
activities engaged by the CIW, (St. Petersburg Times Online Business, March 5, 2006), workers are receiving $10
more per week, thanks to the Taco Bell agreement with Florida tomato growers.

by an elastic labor supply curve is that of displacement from the labor market; with a perfectly

inelastic labor supply curve, there is no labor displacement.

Following Welch, the labor market is assumed to be a competitive market and the supply

curve is assumed to have some elasticity. Because of the segmentation due to the agreement,

there is a derived demand for Florida tomato labor that picks tomatoes purchased by Taco Bell,

and another for Florida labor picking tomatoes for other buyers. Labor picking tomatoes

purchased by Taco Bell will be referred to as labor under the agreement and the rest of the labor

will be referred to as non-agreement labor. These demands are graphically represented in Figure

A5 by Da and Dn, respectively. The sum of the labor demands is the total or aggregate demand

for labor on Florida tomato farms, Dr. Prior to the agreement, equilibrium wage, we, and

employment, Lte, are established by the supply and total demand curves, S and Dt. Given

equilibrium wage rate, We, agreement employers would have employed Lae units, and non-

agreement employers would have employed Lne units. The new wage rate received by the

workers covered by the agreement (inclusive of the supplement) is represented by Wa.

As suggested by the earlier numerical results,, the wage increase paid by the buyer, Taco

Bell, reduces labor demand for agreement labor to La. In other words, due to the increased wage

rate under the agreement, less labor is assigned to pick Taco Bell tomatoes than prior to the

agreement. This reduction increases the supply of labor to harvest tomatoes for other buyers by

non-agreement labor, i.e., there will be an excess supply of labor in the non-agreement segment

at the original equilibrium wage, we.

The excess supply is illustrated in the figure A6; it is the distance between the Ln and L1

(equal to the displacement from the agreement market). The supply shift to Si is such that if all

the workers find a job in this market their wage rate would be wi, lower than the equilibrium

wage rate prior to the agreement. Given this wage, some workers may choose to work in other

labor markets, or drop out of the labor force. As non-agreement workers leave the Florida

tomato labor market to join other markets and as others drop out of the labor force, wages are

pushed up until the market reaches a new equilibrium at w2, but still below the competitive

equilibrium wage, we. That is where the residual supply for Florida tomato non-agreement labor,

Sn* intersects the demand for non-agreement labor, Dn.

Referring to figure A7, labor in the agreement market gains area (a), but loses area (c).

Therefore, their net gain is (a) -(c). Industry in the agreement market loses area (a) transferredd

to labor) and area (b) from reduced production under the agreement.

Combining the two market segments in a single diagram in figure A8 it is clear that the

labor surplus gain equals the industry's loss from the agreement and vice versa. Labor surplus

gain from the agreement is the area (a). Area (a) is the net redistribution from the industry to

labor under the agreement. The industry gains in the non-agreement labor market are the

difference between the equilibrium wage rate we and the new wage rate for non-agreement

workers w2. Correspondingly, this is a loss to labor in the non-agreement sector.


The problem addressed in this paper is an important social issue regarding wages and

working conditions of seasonal farm workers, and is an important concern of labor-intensive

specialty crop producers. The Taco Bell agreement represents a different approach for

negotiating with labor. A unique aspect of the agreement is the arrangement between the buyer

of the farm product and the farm workers.

The analytical structure provides an interesting way of bringing the structure of the

product and factor markets, and the production technologies directly to bear on the implications

for factor, grower, and final product market participants. In particular, it provides an analytical

means of addressing changes in distribution resulting from labor agreements under alternative

market conditions as addressed in the paper. The approach uses standard economic analysis in a

novel way to address an interesting labor issue across different levels of the marketplace.

Whether or not farm workers are better off with the agreement depends largely upon

whether or not they are employed by a grower supplying Taco Bell. If they are outside the

agreement, they are likely to be worse off, either with lower wages than prior to the agreement,

or potentially displaced due to the likely lower level of employment. The agreement results

largely in a redistribution from Taco Bell and growers to agreement workers. However, to the

extent there is a wage reduction in non-agreement employment, there is potential redistribution

from non-agreement workers to non-agreement growers.

The extent of the agreement is currently rather small. If similar agreements are made

between other retail level buyers of farm products and labor, the major component of

redistribution will be from industry to farm workers in the form of higher wages.


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unpublished Ph.D. dissertation, University of California, Berkeley.

Yum! Brands, Inc., "The 2005 Annual Report", http://www.yum.com/investors/annualreport.asp.

Figure Al Market Level Boycott and Supplement Effects
Final Product Market:

Py Equilibrium




Yb Ye
Tomato Market:



Xb Xe


D 1

YyD D Ye
Yb Ya Ye

D X,
Xa Xb X,

Figure A2 Labor Market under Limiting Case






Figure A3 Final Product Market for Different Demand Elasticities





Figure A4 Economic Gains from Agreement Without Restrictions on use of Supplement

Xa Xe X

Figure A5 Agreement Distortion to the Florida Labor Market



Wa \

S Da\ DI Dt

La Lae Lne LteL

Figure A6 Adjustments in the Uncovered Labor Market

La' L L LnL2L1

Figure A7 Economic and Welfare Analysis

w I



La' L,

L LnL2Li


Figure A8 Agreement Welfare Analysis on Florida Tomato Labor Market

[ Agreement Workers' surplus gain=Industry's surplus loss

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