Immigration and Efficiency

November 20th, 2012 at 9:10 pm

Headed to Arizona for T-day holiday so the mind turns toward immigration reform.

To restate the overstated, there’s a real opening for comprehensive reform coming off of the election.

The President has made it a priority for term two, many D’s are surely ready to consolidate their electoral advantage, and some R’s recognize that it would be politically damaging not to board this train.  (I heard one R pollster after the election claim that going after immigrants was like smoking to Republicans—they know it will kill them but they do it anyway.)

The politics are, of course, the sine qua non here—there will be no reform absent some alignment of political stars that has eluded thus far.   But I’m here to talk about the economics.

These can be divided into a few bins: the impact of immigration on the incomes of domestic workers who compete with immigrants; the fiscal impact; the macro impact (I’ll get back to this soon in the context of this post).  And along with these big questions, there are distinctions like undocumented immigrants and their kids who are here already versus those who want to come to America.

I plan to write numerous posts on these topics in coming weeks, but for this first one, I’d like to focus on one: undocumented workers already here within our borders.

My motivation grows out of a discussion I had with a friend in the food industry.  He is clearly a good, ethical employer who abides by the law.  But he also lives in some measure of fear that he’s unknowingly hiring illegal workers.  He runs the required checks but is aware of their fallibility.  He doesn’t use E-Verify much (it’s not required in VA in the private sector), in part because he’s heard about the false positives, but in no small part because he doesn’t want to be at a competitive disadvantage against other employers who don’t bother with it.

He told me of many cases of excellent employees—some who’d been with him for a while—disappearing when a check came back with a question mark or when ICE authorities came around.

This is highly inefficient and I really don’t see the upside.  Evidence is surely sketchy, but I don’t believe we can hassle people into self-deportation, certainly not in significant numbers.  All we’re doing with the current shadow dance is creating more uncertainty, inefficiencies, and nervousness in the job market, and typically in sectors dominated by small or medium-sized businesses with tight margins.

I don’t have any way to quantify the waste involved with this dynamic—I’m stuck at the level of anecdote.  But I guarantee you that in areas with lots of immigrant workers, employers waste a lot of money on turnover, covering their butts (e.g., outsourcing hiring/subcontracting), and underinvesting in their workforce that could be avoided if we had a rational policy in place.

Don’t get me wrong.  As my friend stressed, there’s nothing good about illegal hires.  But employers like him are at the mercy of a broken system.  And when the Feds take a pass on the issue, it’s perfectly legitimate for the states to come in and fill the gap.  That’s by no means an endorsement of the harsh, anti-immigrant measures adopted in some states like the one I’m jetting to as we speak.  But I get their rationale.

So, in the name of workplace efficiency—to ease the uncertainty among employers hiring questionable applicants and to avoid costly turnovers and high vacancy rates in vulnerable businesses, we should accept the fact that the folks who are here are mostly staying here, as are their kids, who should have Dream-Act-style access to the same public services as my kids.

I just read that the Texas Republican party platform includes the following: “Mass deportation of these individuals [undocumented workers] would neither be equitable or practical.”  And that’s from Texas Republicans…

As the President has already stressed, such benefits should come with explicit costs (fines), and should be paired with border security measures.  It makes no sense to contemplate immigration reform if we can’t control the flow.

But a smart place from which to start is to throw out the idea introduced in the recent Republican presidential primary that we can hassle people into going away—the history of immigration in America clearly shows this to be ineffective—and work toward integrating the families that are here.  And not just because we’re a nation of immigrants and all that sentimental stuff.  But for hard-nosed efficiency reasons.

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17 comments in reply to "Immigration and Efficiency"

  1. Nick Batzdorf says:

    If the only problem with illegal immigrants is their competitive advantage, the only solution I see is to eliminate their competitive advantage: set a realistic minimum wage and focus our energies enforcing it, rather than harassing people who appear to fit a certain “profile.”

    And that’s just for openers – there are many collateral advantages.


    • save_the_rustbelt says:

      Employers who knowingly employ illegals do so because they can evade payroll taxes, unemployment taxes, minimum wage rules, overtime rules, OSHA rules, and state and local taxes.

      It would take a lot of adjusting to erase that advantage.

      There are employers, as Jared pointed out, who try to comply and are nervous about the results.

      Once we tell people (employers and employees)they do not have to obey the law, we get a guaranteed mess.


      • Nick Batzdorf says:

        Right, but everything we’ve tried so far is a fool’s errand: adding more and more border patrol agents (and putting them at ever greater risk), creating 700-mile-long erections, passing “dry hate” laws, advising people to self-deport…it’s all beyond absurd.

        I say train those ICE people in accounting and let them audit books instead of making life even more miserable for those poor, poor people. Plantation owners won’t run away when they show up.

        A realistic minimum wage is a great idea in any case, not just for these people. According to Dean Baker, the minimum wage would be almost $20 today if it had kept pace with inflation and productivity increases since the late ’60s.


  2. Jeff says:

    Do you plan to publish a How-to-talk-to-your-crazy-uncle at Thanksgiving post again this year? That’s an entertaining read.


    • Jared Bernstein says:

      Good point–I’ll try. What with the election, I’ve been stuck in those arguments 24/7 for awhile but the holiday’s approach and we must prepare!


  3. Fred Donaldson says:

    Australia and France manage with $15+ minimum wages for adults, so the competitive advantage disappears when you must pay everyone a living wage, but that assumes there are no folks “working under the table” at rates lower than everyone else just to get a job or avoid deportation by a malevolent employer.


  4. Tom in MN says:

    All this is treating symptoms, if you really want to be efficient you treat the fundamental problem. The real long-term solution is to help Mexico (and other countries) become a good place to live and work. We don’t have this problem with Canadians for a good reason. All the money we spend on dealing with symptoms should be instead invested in Mexico. This also covers money spent on dealing with the drug problems that are also related to Mexico. Having a failed state on your border is expensive in many ways and building fences is not the answer.

    Yes, part of the solution is to export jobs to Mexico, but globalization is going to happen anyways, so we might as well have the jobs go nearby where they benefit us in other ways. You were just in Mexico, so I’d be interested in your insights into what would help.


  5. dougfir says:

    Our area experienced an ICE raid at the meat-packing plant in the valley. (All ten plants the company owned in two states were raided that day. About 10% of the total workforce was deported as a result. Try to tell me the company didn’t know they were hiring illegals…but I digress). A year later, the brown-skinned people still in the valley were still hiding from the law, fearing they would be deported as well, even if they were legal. Families were ripped apart (ICE won’t deport children with the parents to keep families together), moms and dads went to work and never came home with no explanation, leaving small children who hopefully had trustworthy extended family or neighbors to go to.
    And this is a case where the company and the employees were paying all required payroll taxes, etc. All the employees also had “documentation” although my son who worked there said it was sometimes not very well forged and easily detected if anyone cared. But jobs needed to be staffed and legal workers tend not to like gutting cows and other such jobs if there are any alternatives.


    • Fred Donaldson says:

      The argument that there are jobs that Americans don’t want to do – and so we need foreigners to perform – has a built in economic fallacy.

      If an employer cannot attract an engineer (or economist) at $8 an hour, he raises the pay until someone decides it is worthwhile to take the job. The same should be true of jobs requiring stamina, patience, or stalwart effort, but not just education.

      Cutting meat, for example, is a skilled and dangerous job. The answer is to pay more for disagreeable work, not cheat the system with undocumented workers. The pay has to increase until it reaches the level that creates demand among applicants. That’s true capitalism.

      I wouldn’t cut meat for $7.25 an hour, but at $40 it starts to make sense, and at $100 an hour the line would be a mile long. And if that raised the price of meat, so be it. Our American society is not about living on the cheap, but instead maintaining fairness and justice in all spheres, including compensation.


  6. Mike says:

    Regarding the Texas platform, this was actually the subject of a recent New Yorker article (not sure if you’ve read it). Basically, an influential contingent in Texas recognizes the need for a party that is friendlier to Hispanic interests if they are to maintain Texas as a red state. However, that contingent expressed a bit of doubt as to whether the national party would follow suit. Hopefully though, this could be a rare high-profile issue where Dems and Republicans can work together to create useful public policy. Republicans talk a big game about a prosperous America, and this is an issue that is directly related to making that happen.


  7. Richard A. says:

    What Republicans want are expanded guest worker programs to put downward wage pressure on labor. Bravo for the AFL-CIO in their opposition to these Republican anti-labor guest worker schemes.


  8. Kevin Rica says:

    I can think of nothing more logically inconsistent than “the government can’t enforce immigration laws — too complicated” and “the government can enforce all social protections and minimum wage laws.”

    Either the government is incapable of enforcing the laws, in which case, immigration is inevitable; or it is capable of enforcing the laws, in which case, taxes are inevitable.

    There is another irreconcilable inconsistency in the modern pseudo-Democratic position on immigration.

    Those arguing that minimum wage laws do not cause unsustainable increases in unemployment must argue that labor market supply and demand are inelastic: prices don’t cause large quantity changes (and vice versa).

    Those who argue that mass immigration does not seriously depress wages must assert that labor market supply and demand are elastic: prices cause large quantity changes (and vice versa).

    Can’t technically reconcile those two things. It’s like saying that you are for motherhood and against sex.

    But there is no question that if you try to combine mass immigration and serious minimum wage laws — you just get mass unemployment – whatever assumptions you make about elasticities. (If you know how to use supply and demand curves — try it! — there is only one possible outcome of combining the two.) That’s why the immigrants brought to France on the dishonest pretext that that their labor was needed — riot and burn cars because they can’t find work.

    Don’t bother to argue that they can’t find work because of “discrimination.” Discrimination is unfair competition. If you claim discrimination you are just admitting that the immigrants came to compete for the same jobs as the natives.

    Besides – the minimum wage is a poverty-level wage. Enforce the minimum wage laws (which don’t even apply to many industries –like seasonal agricultural labor) that attract illegal immigrants and people will still be poor and without health insurance. Too many people and not enough jobs!

    But if all the illegal immigrants ever did leave for one reason or another – and you would have a labor shortage. Read a freshman economic textbook – labor shortages cause an increase in the general wage level. Employers simply have to compete to attract the available labor force.

    Romney was lucky – he lost the election and is not trapped in his campaign lies.

    But woe to the victor – his frauds are exposed!

    Signed — A Truman Democrat (and the other two surviving Truman Dems both agree with me!)


    • Nick Batzdorf says:

      I’m not sure why it’s logically inconsistent to believe that some laws are unenforceable while others aren’t.

      And I question those assumptions about the effects of a higher minimum wage. People would have more money to spend, which creates more jobs, not fewer. Tax revenues would increase. Some prices would go up, but that would be offset in a progressive way (the people with the higher minimum wage would now be in a better position to pay the higher prices, while richer people can already afford to).

      I guess the Malthusian argument about higher wages attracting more immigrants makes sense, but my intuition is that it’s not right.


      • Kevin Rica says:

        Nick,

        Your first point is well-taken. I happen to believe that both laws are enforceable, but immigration laws are much easier to do.

        Checking employment records for false or stolen social security numbers is relatively easy. As soon Simpson-Mazoli went into effect, the Social Security Administration started noticing discrepancies in its records and started generating “no match letters.”

        The Chamber of Commerce went to court to block use of no match letters for workplace enforcement a few years ago. The Chamber of Commerce was not there to raise its labor costs. Same story on e-verify; the people who want to block it are not afraid that it will be ineffective. They are worried that it will work.

        On the other hand, enforcing minimum wage laws, whether miserly or generous requires lots of inspectors and constant monitoring. It can work if the penalties for violations are serious enough and if a LOT of resources. I support it, but it’s the more difficult of the two to enforce.

        However, the “Law of Supply and Demand” is self-enforcing – which is why the Chamber of Commerce fears it when it is allowed to work for their employees. That is why they scream for more “guest workers” or “essential workers” whenever a “shortage of labor” (the mechanism that drives wage increases in a market system) threatens.

        But you seem to be confused about the supply & demand model. What you call my ASSUMPTIONS are the RESULT of the standard supply demand exercise applied to a simultaneous increase in a binding minimum wage and the labor supply. My point is that the increase in unemployment is invariant with respect to the assumptions. Since the number of jobs is fixed by the minimum wage, every new worker will cause a one-for-one increase in unemployment. That is a result.


  9. Kevin Rica says:

    Unemployment is the biggest inefficiency and waste possible. It’s will resources (people) left idle and on public assistance.

    If all the illegals went home, your food-industry buddy would still be in business (we’d still have to eat wouldn’t we?), wages would be higher. (It’s amazing how many “progressives” want people to get paid higher wages but aren’t eager for employers to pay higher wages. What is it about transitive verbs that they don’t get?).

    So obviously American unemployment would be decline. Just different people and different complexions at the work stations. Some of those complexions would even belong to that group of people that the immigration lobby hints darkly are too lazy work hard. Others would be that complexion that the immigration lobby hints brightly are too stuck up to work hard. And of course others, as David Card tells us will, will have the same complexion — just an earlier version and will make more money. (Many people think it’s OK for that complexion to earn less because their station in life is to earn less money. That’s why they came.) It pays to know the race code of the immigration lobbyist.

    But less unemployment is less inefficiency.


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