Immigration Rules: An Economic Disaster?

Homeland Security's plan to crack down on employers will gut industries of workers and drive more immigrants underground, say opponents

Employers and immigrant rights groups are speaking out against rules announced Aug. 10 by the Bush Administration requiring employers to fire workers without valid Social Security numbers. Opponents argue that the regulations, effective in one month, will create a disastrous ripple effect in the U.S. economy and disrupt the lives of an estimated 12 million undocumented people in the U.S.

"Throwing this rock in the pond will have devastating consequences," says Craig Regelbrugge, co-chairman of the Agriculture Coalition for Immigration Reform and spokesman for the American Nursery & Landscape Assn. "The anti-immigrant crowd hasn't thought through what would happen if this entire workforce went away. Who will be there to put meat and vegetables on American dinner tables? The only unaffected group will be Americans who do not eat."

Industries that employ large numbers of undocumented workers, such as agriculture, construction, cleaning, and maintenance, will be disproportionately affected by the rules. Regelbrugge estimates, for example, that fully 70% of all U.S. agricultural jobs are now occupied by undocumented immigrants. "There's panic right now in the agricultural sector," says Regelbrugge. "[The policy] will force employers to either fire experienced, trained workers or put their head down and hope law doesn't catch up with them."

Clear Guidelines

The rules, released following Congress' failure in June to pass comprehensive immigration reform, mandate that employers get rid of workers whose names do not match up with their reported Social Security numbers. Companies have 90 days after the Social Security Administration (SSA) sends out a "no-match" letter—detailing when a number submitted to the SSA isn't consistent with the name on file—to resolve the discrepancy or fire the worker. The regulations were announced by Homeland Security Dept. Secretary Michael Chertoff and Commerce Secretary Carlos Gutierrez during a press conference last week.

Employers who fail to comply will face fines of up to $11,000 per worker and up to six months' jail time. Administration officials also announced that they would speed up construction of fences along the Mexican border, hire more border patrol agents, and detain more undocumented immigrants caught crossing the border.

Until now, the government did not issue clear guidelines for employers to follow upon receipt of "no-match" letters from the SSA. Under a 1986 law, employers must ask job applicants for documents to verify they are U.S. citizens or authorized to work in the U.S. Many undocumented workers obtain false identification papers in order to work. It is estimated that 75% of the undocumented population is currently working with false Social Security numbers, with the remaining quarter in the cash economy.

Strong Reactions

Asked about employers' reaction to the announcement, Homeland Security Dept. Spokesman Russ Knocke says he expects compliance, and the department will aggressively pursue those who fail to do so. "Everyone understands we have a job to do, and we're very serious about getting that job done," says Knocke. "Now there is an opportunity to do the right thing or the wrong thing. And if employers do the wrong thing, they're really going to regret it."

But critics say the changes are damaging and a far cry from the even-handed immigration reform many had hoped for. "This isn't so much reform as it is a power grab from the Department of Homeland Security to do through regulation what failed in legislation," says Angelo Amador, director of immigration policy for the U.S. Chamber of Commerce. The U.S. Chamber of Commerce, like many business groups, has favored a guest worker program.

"The bottom line is that this punishes employers for the lack of action by our legislature," says Mark Gould, president of Gould Construction, a heavy construction and highway contractor based in Glenwood Springs, Colo. "One month ago, Bush said he was for a guest worker program, and now he says, 'Go and fire them all.' The dots aren't connecting for me." Gould says his workforce of 125 are legal immigrants, but argues that businesses need more workers to have a legal path to employment in the U.S. to solve a labor shortage. His firm has 10 open positions he cannot fill.

The agricultural sector, which depends heavily on migrant labor, may be the hardest hit. "It's going to be crazy," says Eli Kantor, a Beverly Hills-based immigration attorney: "There will be major disruptions to the economy of Southern California, [which is] heavily dependent on immigrant labor. There will be crops rotting in the fields." Kantor says he expects some of his clients to lay staff off, while he expects others will "take their chances."

Degrees of Impact

Others warn of unintended consequences including job losses for immigrants and native-born Americans alike. "The consequences for the economy will ripple out far beyond the individual immigrants who lose or change their jobs," says Douglas Rivlin, a spokesman for the National Immigration Forum, a pro-immigrant advocacy organization in Washington. "Businesses may close or move off-shore because of the loss of workers and the costs of compliance while downstream processing, shipping, and retailing businesses will also feel the impact. This will hurt many native-born workers who depend on these jobs—all so we can appear to be 'getting tough.'"

Some companies say the stepped-up rules will not impact their businesses because they are in compliance with the law. "We already take action on no-match letters from the Social Security Administration," said Libby Lawson, spokesperson for Tyson Foods (TSN) in an e-mail statement. "For years, it's been our practice to actively respond when the government notifies us of a problem with a worker's Social Security number."

Labor unions, which in previous decades sought to restrict immigration, are now speaking out in support of undocumented workers, who are among their members. "This rule change is the wrong solution to the problem," says Eliseo Medina, executive vice-president of the 1.4 million-member Service Employees International Union (SEIU). "It's a knee-jerk reaction to the failure of immigration reform in the Senate. It will cause a whole lot of misery for workers, and huge problems for the economy."

An Informal Economy?

Medina warns that apart from causing hardship for workers and severe labor shortages in some industries, the new rules could have the unintended consequence of expanding the underground economy. "It's going to create a cat-and-mouse game," says Medina. "Workers will be forced into an informal economy where employers pay cash and operate entirely off the books. This is dangerous for immigrants, and will only pull down wages and benefits for American workers. Bottom-feeding employers are going to have a field day with this."

Medina says fear is spreading throughout the immigrant community, and that the SEIU is developing a program to inform workers of their legal rights. The SEIU is also in discussions with employers, cooperating at times to voice opposition to the new rules.

In the meantime, many employer and immigrant advocates say they don't expect positive steps in immigration reform until Congress manages to pass legislation. "This thing will get worse until we figure out how to reform immigration laws," says Medina. "I'm afraid we're entering into a very difficult period."

Before it's here, it's on the Bloomberg Terminal.