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As the Department of Homeland Security prepares its "no match" assault on American businesses that employ illegal immigrants, it's time to examine common misconceptions about the role illegal immigrants play in American business.

In a recent discussion of the disproportionate impact "no match" will have on California, it occurred to me that there's quite a bit of misunderstanding in regards to the role illegal immigrants play in American society. Let's see if we can't clear some of that up:

Myth: Illegal Immigrants Are Taking Jobs Away From Americans.

According to the U.S. Bureau of Labor Statistics, there was 7.1 unemployed Americans in July or an unemployment rate of 4.6%.

Full employment, if it could be attained, might mean a reduction in the unemployment rate to 3-4% before rising labor costs drove the jobs overseas; but, more than likely we're as close as we're getting to Full Employment while we are willing to compete with third-world labor rates.

It is estimated that there are over 7 million illegal immigrants holding jobs in the U.S. Many of those workers work in low skill, low wage jobs that many Americans do not want. When you look at unemployment by the sectors of the economy where illegal immigrants can be found (construction, agriculture, Non-Durable Goods, Hospitality), there's less than 2 million unemployed Americans. Now, before you say that those 2 million people lost their jobs to illegal immigrants, consider this bit of analysis:

More than a third of illegal immigrants live in just three cities: New York, Los Angeles and Chicago. But even in these places, economists believe there is minimal impact on wages. That's because many Americans from other parts of the country choose not to move to areas with large numbers of immigrants, because they want to avoid competing for jobs.

Myth: Illegal Immigrants Tax Social Services

It is undeniable that illegal immigrants use some parts of social services in this country. For example: Their children, often American born and entitled anyway, attend school; and, they go to the hospital when they get sick.

However, a study into the cost of government services for illegal immigrants found that "the costs that illegal-immigrant households bear on the federal government are less than half that of other households". It should be noted that that was a study arguing against amnesty for illegal immigrants.

Myth: Illegal Immigrants Hold Down Wages

A study by the Center for Immigration Studies suggests that competition from illegal immigrants reduced the wages for comparably skilled Americans by 7.4% over the past 20 years.

Logically, on its face, there is some truth to that, and this article has some statistics to back it up:

Pay in construction and hospitality, sectors known for relying heavily on immigrant labor, have not grown as quickly as pay in other areas, state Department of Labor and Employment figures show.

Average construction wages rose 1.2 percent from 2001 to 2005, after adjusting for Denver-area inflation. Hotel, motel and restaurant pay increased 4.2 percent. Contrast that with the finance and health care industries, which saw inflation-adjusted gains of 6.3 percent and 8.9 percent.

However, the article goes on to make some other important points about low-skilled labor:

Without immigration, companies likely would replace employees with automation and manufacturers would move more work offshore. Businesses say they might boost wages if the cheap labor force dried up, but they also would raise prices for consumers and probably open fewer new restaurants or factories. And that means fewer jobs.

Lower wages paid to illegal immigrants keep more jobs and manufacturing in the U.S. Everyone would pay higher prices for just about everything without illegal immigrants. That kind of inflation will produce more unemployment as people are forced to cut out expenses like eating out, seeing a movie, etc. Remove illegal immigrants from the equation and wages wont rise; the jobs will simply disappear.

Myth: Food Prices Will Not Soar If Americans Did The Work

First of all, Americans won't do the work. Californian growers are having a hard time keeping illegal immigrants doing the work. Last Year's use of the National Guard to tighten border security produced worker shortages on California farms. California produces nearly half of all fruits, vegetable and nuts grown in the U.S. and the industry freely admits that 80-90 percent of their workers are likely illegal.

According to the American Farm Bureau, farmers actually see about 22% of the retail price of the food they grow. If farmers saw a 25% increase in their cost of production as a result of having to hire only Americans to do the work and only their wholesale price rose accordingly, consumers would see food prices rise 5%, but more likely a higher fraction of the 25% would be passed up the chain likely resulting in a 10-15% rise in food prices.

Farmers are already paying an average of $9.31 an hour for field workers and are forced to hire illegal immigrants to do the work. That's well above minimum wage. At some point, we have to recognize that Americans don't want these jobs; or, we have to accept that if the pay were raised to the point that Americans would do the work, the food could be imported cheaper.

A Final Thought

I am constantly amazed by the advocates of "free trade" and "market forces" who turn around and begrudge the contribution of illegal immigration to our economy. I've spoken to libertarians who practically in the same breath call the minimum wage market interference and argue that cheap illegal labor takes jobs away from Americans. Is it their hope that in the absence of illegal immigrants Americans will settle for lower wages? Reduced supply of labor will drive the price of labor higher. Higher domestic labor costs makes overseas manufacturing and automation more attractive. That's all Economics 101.

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