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Monday, March 27, 2006

Business and Immigration

Washington Post has an interesting article on business and immigration this morning. One of their big worries is becoming "enforcement agents" for whatever type of immigration policy is enacted.

Currently business is an enforcement agent, kind of. Since we don't enforce the immigration laws very well though, they don't see it. What ever Congress enacts, they need to make sure that there is a balance on who's the actual enforcer on the new laws, and punishment for those who make genuine mistakes.

What I found interesting in the article is the story of the guy running the landscaping company who can't find anyone to work at $7.74 an hour starting wage, and $9-11 average. He ends up getting his laborers by using the H2B visa program, which allows a 10 month stay in the states. The workers also pay all the same taxes you and I do, including Social Security and Medicare.

Now, does he pay a cheap wage? Sure but to be competitive against rivals who use illegal labor, he has to keep costs down. Consider this, though; what he pays is about double what one could expect to receive from AFDC or unemployment insurance; and he still has to import workers.

Considering the city of DC has a 5.5 percent unemployment rate, and 7.7% rate of folks on welfare, shouldn't he have people jumping for those jobs?

Even if you gave up your unemployment, and AFDC payment to take that job, the wage is still low enough to collect food stamps, that most on AFDC already get. So again, it raises the question, are there jobs that are just too menial for some of our population?

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13Comments:

Blogger Juan said...

The Anti-Immigration debate is raging hard these days. Some would like to create a Guest Worker Program, others would like to maintain the Status Quo and yet others would like to banish all Illegal Immigrants. So, here is an interesting question.... what would happen if Illegal Immigrants could be magically removed from the U.S.?


Even by the most conservative estimates, we can assume that the average Illegal spends at least $500 a month. Overnight, the U.S. Economy would shrink by $72 Billion a Year (12MM People * $500 a Month * 12 Months per Year) ... a sizeable amount of money.

Now, you may be aware of the Economic Multiplier. Those that aren't, the Economic Multiplier is the idea of that every new dollar in the economy leads to many more.... and likewise taking a dollar out of the economy.... leads to many less dollars. For example, an Illegal Immigrant stops paying Rent... if the Landlord can't fill it...then he/she will have less money to spend or invest... then the Vendors that depended on the Landlord's money would likewise be affect...etc.,

Even by conservative estimates...the U.S. Multiplier is about 7.... so the $72 Billion per Year would eventually become $504 Billion about 3.8% of the total U.S. Economy. This alone would represent a far worse Recession than Post 9/11 or even Pre-Gulf War.

To this we add the Inflationary impact of the loss of cheap labor. In places like California where there is about 4 Million Illegal Immigrants.... the impact on Cost of Living there would be significant. The cost of Goods and Services typically rendered by Illegal Immigrants (Harvest, Food Prep, Retail, Housekeeping, Janitorial, Landscaping & Manufacturing) would probably increase by 25% (assume Cost of Goods / Services approximately 50% of Sales...and Wages would double to meet demand). Overall, it would probably increase inflation in California by at least a few percentage points. This inflation would of course be exported to other states in the country.

Next, there is also the impact on Mexico. Mexico currently gets a boost of $10 to $25 Billion per Year from transfers by Illegal Immigrants.... greater than all Sources of Foreign Investment Combined and assuming a Multiplier of 10.... that is an impact of $100 to $250 Billion on the Mexican Economy...or 10 to 25% of Total GDP. Mexico would go into a Depression outright. Given that Mexico is one of the U.S. biggest Trading Partners.... and one of the few Big Partners that the U.S. has actually had a positive Trade Balance with... it would be disastrous on the U.S:

> U.S. Companies would lose anywhere from $20 to $50 Billion in Export Revenues. If we include the multiplier effect...we are talking $140 to $350 Billion effect on the economy or 1 to 2.7% of GDP

> The U.S. would lose a key source of Currency & Interest Rate strength...the Dollar would devaluate relative to the Euro and Yen, forcing interest rates higher... and forcing greater borrowing from China and other countries (because of the increased Trade & Current Account deficits).


So far... we have:

> Immediate GDP Contraction almost 4%
> Inflationary Impact of a couple %
> Additional GDP Contraction due to lost Export to Mexico of 1 to 2.7%
> Undetermined increase of Interest Rates (increased Trade & Current Account deficits)


It is not hard to project what this scenario would mean.... Stagflation or Depression.

11:54 AM  
Blogger Steven Tucker said...

We can't fix the problem we have with the people that we already have, but we can go after businesses that hire illegal aliens and we can protect our border. I say, we create one of those socialist work programs that "worked" so well for FDR. Let's build a great wall, armed to the teeth with soldiers with automatic weapons. These people are a bigger threat than terrorists (in a year or two, illegal aliens would have cost our economy more than 9/11 and they will have murdered more Americans than the terrorists).

The ones we have can stay here after, with full amnesty, after the wall is created. But then we must have a zero tolerance. Illegal aliens should be view as a military assault on the security of America and should be treated as enemy combatants and nothing more.

Solve the border problem 1st, and then deal with the people who have already invaded. It will be expensive, but allowing mexico to export the worst they have to offer is even more expensive.

1:20 PM  
Blogger faeriebell said...

I think building a wall around our country, oh no wait, it's just across the mexican border right, is a horrible idea.

Mr. Tucker, what research are you using? As the commenter above you puts forth, illegal immigrants buy things, spend money in the economy, work, and are generally honest and upright people. Murdered more poeple than the terrorists? That sounds like spin and nothing else.

I'm for amnesty to those who are here, allowing them to become lawful citizens , allowing them to be employed (and not just in 'jobs americans don't want to do'), and things along those lines.

Illegal immigration is just lacking a piece of paper. I've known many illegal immigrants and they were not the scourges of society, they were honest working people looking for a better opportunity.

2:14 PM  
Blogger Patrick Joubert Conlon said...

Well, we're not going to get rid of the 11 million illegals who are here already so we might as well legalize them on the condition that they learn English and become citizens not visitors with loyalty to Mexico.

I never saw white Americans on welfare until I moved to the boonies. It was an eye-opener. It won't happen but the only solution I see is to insist that people work for their welfare doing the jobs that illegal aliens do.

2:26 PM  
Blogger shoprat said...

The problem is partly that there are many Americans who believe that their unskilled labor is worth $15 to $25 an hour and there are also too Americans who don't believe they should have to work for a living. That is part of the reason that so many immigrants, legal and not, are taking these jobs. If Americans would face the real value of their work and regain a work ethic, this would lower the demand for illegals.

5:39 PM  
Blogger Crazy Politico said...

I think Shoprat is actually on to the right answer. We've become spoiled in the US, thinking everything we as workers do is gold, and should be paid as such.

The fact is, washing dishes and spreading mulch are crappy jobs, that require no special skills or ability, and don't deserve a "great salary". They deserve low wages.

Patrick has an interesting idea, but considering how much time programs like Wisconsins Welfare to Work (w2) spent in court, I think his idea would really spend some time in front of a judge (actually, a lot of them). But I think it would be totally fair.

6:59 PM  
Blogger ablur said...

Hey Juan,
29% of those in Federal Prison are illegal. Since there is approximately 65million prisoners. That works out to 18.85million at $23,500 per year up keep. That's about $450Billion in additional expenses payed against GDP.

The average immigrant brings 3.5 children with them to be educated at $10,000 per child per year. Lets assume only 11 million illegals and only 20% have families with children here. That would be 2.2 million x 3.5 children or 7.7million children to educate. That would render $77billion for education paid for by Americans coming off the top of are GDP.
__

Do we really want to play this game? We could go back and forth all day + or -.

This is our house and we need to take control on who we let in and for what reason. We need to stop sneaking people in the back door. Once we get control of our own home then we can decide how much more we need to allow in.
Yeah, I know Mexico is a big trade partner. We can offer them some priority for entry. We seem real good at quotas for everything else we should be able to come up with something for this.

11:12 PM  
Blogger James B. said...

You are completely misusing the concept of an economic multiplier. If bad economics were a felony, you would be in jail. Regardless, if 5% of the population leaves, with 3.8% of the GDP, per capita GDP goes up, this is hardly a depression.

1:33 AM  
Blogger Crazy Politico said...

James, he's not as far off as you think. For instance, if you take a landscaping company with 27 employees, 20 (illegals) as laborers, 5 foreman (legals), and a couple of secretaries, etc.

If you haul off the 20 laborers how much work does the company lose? All of it, not just the 80% that the illegals provide.

That means that the legal workers are out of work for at least a few days while the owner tries to find replacements for the illegals that were removed.

Same with construction. Say that 1/2 of the framers on a job are illegal and 100% of the roofers are legal. The roofers can't work until the framers are done, meaning that they are going to sit home waiting for the framing company to replace it workers before they can work.

Neither of you gets an A in econ, because both tried to use math that's too simple, and avoided the collateral damage that would come with the deporations. Juan was probably closer, though.

Ablur, the flip side to your arguement is that as consumers we save much more than that by having products that are cheaper on the shelves because of illegal immigration.

Again, there ain't no easy answers, but there are lots of them that will probably serve us all better if we actually pulled emotion and our own predjudices out of the equation, and worked on something fair and actually workable.

4:32 AM  
Blogger ablur said...

If companies would be honest and report honest needs to the government as prescribed under our visa program they would have the workers they need.
The cost of labor is only around 25% of the costs associated with a company. Increasing the wage to what Americans or Legal immigrants would be paid would only raise this cost 5% to 30%. The net result of such activity would possibly force companies to up the cost of goods by about 2% to cover this. The 2% increase in goods across the entire labor market would only show about a .25% increase in cost.

Any business that has their sole production based on illegal labor should go under. They are breaking the law and deserve the maximum penalty.

Check out my bio. I am more then qualified to talk about business. You also should look at an article on my blog about understanding price structures in business. It might open the eyes to what it really costs to employ someone.

9:01 AM  
Blogger James B. said...

I am not saying that there are no economic impacts, but using the "economic multiplier" like that is not the way to calculate it.

http://en.wikipedia.org/wiki/Multiplier_%28economics%29

The impact would be primarily inflationary, low wage low skill labor, by definition has a small impact on GDP.

11:33 AM  
Blogger ablur said...

Money wasted to serve non-American needs, is just that wasted. This money could have been used to strengthen the economy or enhance business. Our national debt jumps to mind here. Think of all the lost money used to provide schooling, prison time and court appointed costs. This money is now lost and no longer serves our economy. We then look at the vast sums moved/wired to foreign countries out of this illegal transaction and once again we see our own nation being hurt by lost spending power. I realize that GDP doesn't directly correlate to the expense but this burden has greatly harmed it none the less.

Yes, we may need a vast work force that currently flies under the radar. I don't think rewarding law breakers is the way to go. We may need to up our visa program to make allowances for this need. We are a nation of laws. This is the glue that holds our nation together and makes it great. If we tear away this, then what value is our constitution? What value is our system of laws? If those who are not of our nation are allowed to break our laws, shouldn't we also? Should we all be allowed to pick and choose the laws we wish to abide? If one person has a right in America, do we not all have the same right?

12:19 AM  
Blogger Crazy Politico said...

James, I look at the history of not looking at economic multipliers in that manner, and see how badly projections get screwed up.

While the major long term effect is going to be higher prices for certain products, the short term shock wave on the economy can't be discounted. Those types of short term shocks that have limited, or stopped the availability of services have caused recessions in the past.

Ablur, I'm with you on the law thing. There has been a demonstrated need for the imported work, but we need to import those workers in a legal framework. Condoning illegal activities makes a joke of any laws.

7:11 AM  

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