Immigration Anxiety

Immigration Anxiety
Thomas I. Palley
May 03, 2006

Thomas Palley runs the Economics for Democratic and Open Societies Project. He is the author of Plenty of Nothing: The Downsizing of the American Dream and the Case for Structural Keynesianism. His weekly economic policy blog is at www.thomaspalley.com

A lot of newspaper ink has been spilled over immigration. So why write another op-ed? Because the economics behind the debate remains badly out of focus, and understanding those economics is key to carving a passage through this nastiest of political wedge issues.

Right now, Congress is deadlocked over how to deal with undocumented workers. House Republicans favor a get-tough on workers approach. The Senate supports a more business-friendly approach that establishes a guest worker program while also offering existing illegal immigrants a path to citizenship. Both approaches are deeply flawed because they ignore worker's rights, and because they fail to tackle the role of business in illegal immigration. Failure to address worker's rights means failing to help those who have been harmed by illegal immigration, while failure to tackle business' contribution means that illegal immigration will continue unabated.

First, some basic economics. In my view, economists—such as George Borjas and Lawrence Katz of Harvard University—have it right when they say that illegal immigration has negatively impacted wages, especially for low-skilled native-born Americans. That is simple supply and demand analysis. The flood of undocumented immigrants has increased low-skilled labor supply, holding down wages relative to what they would have been absent any immigration.

However, these economists are mistaken in their claim that the economic contribution of undocumented immigrants is very low. Their reasoning is that low-skilled immigrants are paid little because their productive contribution is very low. Ergo, even though immigrants may be far better off than they were in their native countries, the U.S. economy benefits little, according to them. However, this logic ignores the fact that illegal immigrants are subject to massive exploitation, so their contribution may significantly exceed what they are paid—with their employers capturing the surplus.

That spotlights a crucial point. Having a huge pool of illegal immigrants who are stripped of legal rights and driven underground creates the perfect environment for exploitation. That environment hurts all workers because the fears of immigrants can be used to lower wages below what a fair market would pay. Those fears can also be leveraged to undermine the bargaining position of native-born workers, especially when it comes to union organizing efforts.

This reality was starkly illustrated in a case from 1999 that came before the National Labor Relations Board. In that case, management for a Holiday Inn Express in Minnesota terminated workers' employment and reported them to the Immigration and Naturalization Service shortly after they had voted to join Hotel Employees and Restaurant Employees Local 17. The management knew all along that the workers were undocumented, but only reported them to bust a union organizing drive.

The Holiday Inn case illustrates how the lack of worker rights for immigrants has adverse wage impacts on all workers. There are estimated to be 11 million undocumented workers in the U.S., and these workers are here to stay. Awful conditions here are still better than conditions in their home countries. Given that, law and policy must change in two ways. First, the undocumented must be given full worker rights. Second, business must be discouraged from trying to take advantage of the vulnerability of undocumented workers.

With regard to worker rights, undocumented workers must be given the full protection of all labor laws–such as back pay for firings without cause. Additionally, undocumented workers should be given "safe harbor" status that protects them from deportation when employers report them as part of a strategy of busting unions and frustrating union organizing efforts. Labor law must apply uniformly to all workers regardless of immigration status, because when it comes to the workplace, an injury to one is an injury to all.

With regard to business, the law must impose stiff penalties on businesses that hire workers without making reasonable efforts to verify their legal status. Additionally, the direction of enforcement efforts must be changed. Instead of pursuing illegal immigrants, prosecuting them and deporting them, enforcement efforts should be directed against business. Business has played an important role in fostering illegal immigration by offering the prospect of employment. Cutting off the supply of jobs to undocumented workers will reduce the pull of illegal immigration. Pairing this with robust border enforcement can then make a real dent in the problem.

Congress is also wrestling with the issue of amnesty or pathways to citizenship for undocumented workers. This is the most difficult issue, because it can appear to condone breaking of the law. Congress must be honest and recognize that it has tacitly encouraged illegal immigration by its past unwillingness to deter business from hiring undocumented workers. At this stage having a large exploitable population of workers is morally repugnant, and it also undermines the economic well being of America's least well-off workers. These factors argue for giving undocumented workers a speedy path to legal status. Allowing them to emerge from the shadows of exploitation will raise their wages, and as a result the wages of low-skill native-born workers will rise.

Taking undocumented workers out of the underground economy can also yield another benefit for society. The underground economy pays no taxes, and it has a tendency to spread like a contagion. That is bad for tax revenues and shifts tax burdens on to the above-ground economy. Once touched by the underground economy, it is easy for business to get further involved—causing a culture of tolerance for illegal transactions to rapidly expand. Reducing the number of undocumented workers will shrink the underground economy, since these workers don't want to be there.

In sum, a comprehensive "workers' rights" approach can tackle the painful problem of illegal immigration. It includes giving undocumented workers the full protection of labor law, creating pathways to legal status for such workers, legal and policy measures deterring firms from hiring undocumented workers and robust border enforcement. The minimum wage should also be raised to compensate for the depressing wage effect of illegal immigration.

Such an approach contrasts with the current congressional approach that essentially avoids the issue of workers' rights. The House seeks to blame already-unfortunate undocumented workers. The Senate looks to avoid the issue with a guest worker program that placates business and a quasi-amnesty program that placates immigration activists. Neither addresses the causes of illegal immigration, and neither does anything for American workers who have been harmed by such immigration.

Copyright Thomas I. Palley

--
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