21 May 2006

Illegal Immigration: A Necessary Part of the American Economy?

Illegal labor has become the backbone of many businesses in America, particularly for agriculture, restaurants, construction, and many service industries, providing low cost labor that reduces consumer prices and increases profit. That may all change with the introduction of Bill HR 4437, which passed in the House last December and is currently being debated by the Senate. Titled the “Border Protection, Antiterrorism, and Illegal Immigration Control Act of 2005”, this bill would enact a mandatory “employment eligibility verification system” to be in place in the next six years. Employers still using illegal alien labor after that time are subject to a fine up to $50,000 for each worker and possibly one year of imprisonment (H.R. 4437, 2006, Title VII: Employment Eligibility Verification).

These extremely harsh penalties and forced conversion to legal workers have many employers worrying about the feasibility of a complete switch of their labor force in the next six years. With many industries so dependent on illegal labor, they wonder if there are enough American workers to replace an estimated 9-12 million illegal aliens. Business owners say they can not find legal workers to do these jobs, many of which are undesirable, hard labor positions. Even if a replacement labor force exists, many companies may not be able to afford the drastic increase in wages necessitated by hiring at minimum wage and providing benefits. The increased costs of labor will have to be passed on to consumers, perhaps causing dramatic price hikes for basic necessities like food. Businesses worry that consumers will be unwilling to pay the increased prices, resulting in serious damage to American businesses. These business owners claim that America depends on the cheap labor provided by illegal immigrants and that a conversion is economically impossible.

According to a study by Thomas J. Carter, a member of the Department of Economics at the University of Florida, illegal workers affect the labor market in two ways. First, illegal workers take jobs that legal workers won’t take, exactly as business owners claim (Carter, 2005, 777). In these sectors, a continual flow of new migrant workers creates a surplus of labor that keeps wages low and allows business owners to increase their profit margins. However, there is a second effect of illegal labor that employers generally ignore: as the number of available workers increases, as it has for the past few decades, industries who used to employ legal workers turn to undocumented workers in order to cut costs (Carter, 2005, 777). Because migrant workers are willing to work for much less than American workers, legal employees become unable to compete for these jobs and are gradually phased out in favor of cost-cutting immigrant labor. Over time, this second effect leads to the first effect: a labor market dominated by illegal labor taking jobs that Americans “don’t want.”

However, it is important to remember that at one point Americans were happy doing these jobs because they provided wages that could support a decent living. These jobs only became undesirable when employers lowered their wages because there was a labor market willing to accept them. This transition can be seen in the many industries currently undergoing the switch to illegal immigration. Take for example the construction industry, in particular, David Shafer, the latest in a family of house framers in Suwanee, Georgia (Feagans, 2006). In the heyday of his business, Shafer had managed to earn over $100,000 a year, a more than decent living by any standard, and owned a vacation home by the lake (Feagans, 2006, Family of framers section, para. 6). The workers on his crew also earned a decent wage, $15-20 per hour, but now Shafer’s company is unable to get any work contracts because of cheap, illegal labor, and “many of his crew members eventually switched to commercial construction or left the business altogether, unwilling to work for such low wages” (Feagan, 2006, Bids weren’t that close section, para. 3). Shafer said, "I can't get a job because these guys work so cheap. . . . I'm going to have to sell a coin collection to buy my wife a Christmas present" (Feagan, 2006, para. 5). The same thing that is happening to Shafer’s construction industry is happening to other jobs all over the country. Jobs that were once respectable have become jobs that Americans “won’t do.” However, we should remember that only a few years ago, Americans like David Shafer and his crew were doing these jobs, but they just can’t or won’t do it for the wage demanded by the illegal labor market. When the labor market is again deprived of this inexpensive labor source, and wages go up, these Americans will mostly likely return to doing the jobs they have done in the past.

But how can increasing the cost of labor be good for American businesses? Won’t the resulting increase in consumer prices cause a large economic collapse? First, remember that increasing wages works on both sides of the argument. It increases consumer prices, but it also raises the spendable wages of the group least able to afford current prices. Indeed, the lower-middle class and poverty classes, the ones who would be most damaged by a price increase, are also those whose improved wages caused the price increase.

Compared to the increased take-home pay for the lower classes, the price increases might not be as harmful as some might think. While statistics on possible price increases due to loss of cheap illegal labor vary widely (from $.19 per head of lettuce to $5.00), a worse-case scenario thought experiment on the subject can give us an indication of the possible effects of using legal labor. Even if an employer is forced to raise wages for agricultural workers by the high amount of $10.00/hr and assuming that worker to only be able to pick 50 heads of lettuce per hour, the increased cost per head of lettuce picked by that worker is only about 20 cents a head. If we add on an increase of pay at packaging plants and grocery stores, it is conceivable that the total price increase might be around $1-2. However, this same full time worker who is purchasing that lettuce would now be making around $400 more every week. Even if the worker’s total weekly grocery costs increase by $100, the increase in take-home pay of workers seems to still be significant enough to allow workers to increase their spending, which could then be passed on to the farm owners, who might stand to actually make money due to an increase in spending.

In general, the upper-middle class will not be as drastically affected by a possible increase in grocery and service prices as some believe. In fact, America’s grocery costs are currently much lower than for similar developed countries. According to an unpublished study by the US Agricultural Department, “Americans spend less on food than the citizens of any other industrialized country” (Katel, 2005, Overview section, para. 31). Specifically, the Encyclopedia

Britannica says that American households spend 7.9% of their income on food in the home, much less than Germany (13.90%), France (14.7%), the United Kingdom (16%), or Japan (23.3%). An increase in grocery prices would simply bring the United States closer to the standard of the world market. The average income in these countries is similar to that of the United States. If their middle and upper classes can afford to pay more for groceries, there is good reason to believe that Americans would be able to do the same.

In the short term view, the switch away from illegal labor may cause some financial problems for businesses as Americans adjust to a new price scale, but these problems are not permanent, devastating, or unsolvable. In the six year transition period, a worker shortage is possible, but there is no evidence that American workers will refuse these jobs, once the wages are brought up to a decent standard. Indeed, workers in industries that are only just experiencing the conversion to illegal labor, like house framer David Shafer, would gladly take their old jobs back. Though wage increases may make a large initial impact on businesses that have been using illegal labor longer, the increased spending capability of their workers will eventually be beneficial to their business and the American economy. Prices will increase across the board, but so will Americans ability to afford them. There is time over the next six years for American businesses to prepare for and survive the transition to a legal labor market, ending America’s dependence on cheap but illegitimate labor.

6 comments:

nicolaepadigone said...

liz,

interesting points you make solely from an economic perspective. It makes it look easy to solve. however, why do businesses hire so many illegal immigrants? they could simply choose to only hire those with actual SSNs, right? what drives businesses to hire illegals?

Liz Muir said...

Of course I make mostly economic arguments. There are really no other arguments that count in this issue. All other aspects are totally and obviously irrelevant. I challenge anyone to make an argument on the issue that isn't economic. People keep falling back on the argument that the US economy depends on these people, and therefore we have to keep them, regardless of our morality.

Economics is what drives businesses to hire illegals. If you spend less money on labor, you can either a) keep charging the same amount and make huge money or b) lower prices and kill the competition. However, although there are economic motivations, these things are not as "essential" to our economy as many people argue.

nicolaepadigone said...

economics cannot account for all matters in this world.

i think that political corruption within Mexico is another major driving factor for many of these people moving north. If you've got a system that keeps you from moving up in the world, why would you still stay there?

this very point is the reason so many immigrants have come to the United States over the past 200 years.

As an immigrant, i can attest to that. My father locked himself in a crate on a freight train to Germany from Romania because of the political situation. He had a good paying job, as did my mother, but the political situation was terrible. So he fled, and eventually got us out too. while Mexico is no communist dictatorship along the lines of Ceausescu's Romania, the corruption so rampant there, the border being so porous between Mexico and America, leads many to say, "it is worth the risk to go to America."

Liz Muir said...

I do realize that there are other reasons driving people from Mexico to America. However, as you pointed out, the political problems are not great enough that we should let them in as refugees. In other words, sure, I understand the need to move to a "better" country, but it is possible to do it legally, and should be done this way. Yes, I realize that it is hard to immigrate legally, and I do think America should work on changing that. But just because other people feel okay with breaking the law doesn't make it the right thing to do. (Another big area where this applies is online music piracy. Mass breaking of the law does not equal okay.) "Worth the risk," maybe, but that still doesn't make it right.

Not Too Pensive said...

While economy is a driving force, the anti-illegal immigration perspective is very "law and order" driven and concerned with poorly secured borders.

I appreciated your article, don't get me wrong. It was a great read. I would say, however, that much of this goes beyond dollars and cents - cultural, political, and linguistic issues are at play here as well.

Liz Muir said...

Anti-illegal immigration and border security are not the same argument really. Illegal immigration happens to include some border security, but it is so much more. It is largely based on economics: do we need these workers, and if so, how can we keep them and have border security? There is no question that securing our borders is a problem, but you don't see people really worried about illegal immigration from Canada, do you?