The Economics of Immigration: More Winners than Losers

“I’d have trouble keeping my doors open without immigrant labor.” – Ripon area factory owner

“Americans would work for [Ripon area factory] if they didn’t treat us like mules.” – former local factory worker, American

“They exploit us, but what else can I do? Where else would I go?” – Undocumented immigrant worker at area factory

“I found out that American workers were being paid more than me to do the same job. I complained to the manager, and he said if I didn’t like it, I could leave. So I did.” – Green card holding immigrant after quitting an area factory

“Americans don’t want to work with their hands any more.” – Local American factory owner

Workers, managers, factory owners and the guy on the street – just about everyone has an opinion about immigration and its impact on the economy. One says illegal immigration is driving down wages and driving up unemployment among native-born workers, another says that the unions have failed to defend workers’ interests. One says the problem is globalization and the pressures it puts on employers to join the “race to the bottom,” while another says it is lazy, over-entitled Americans who don’t want to do manual labor. Some say immigrants are saving our economy, others say they’re ruining it.

Whichever way you see it, economic forces are shaping immigration, and immigration is shaping our economy. The Ripon area, as it turns out, is a revealing microcosm of what is happening nationwide.

Most economists agree that immigration as a whole is important to the U.S. economy. According to the Bureau of Labor Statistics, between 2002 and 2012, 56 million new jobs will be created, more than 75 million Americans will retire, and native-born fertility will approach replacement level. In particular, the economy is annually producing hundreds of thousands more low-skill jobs than will be filled by native-born Americans, who are graduating from high school and college in record numbers. Industries such as agriculture, food processing, hospitality, some manufacturing, and construction now rely heavily on an increasingly immigrant labor force.

In the Ripon area, three food processing and two manufacturing plants rely somewhat to heavily on immigrant labor. Neighboring communities have a number of enterprises that employ a growing number of immigrant workers to milk cows, make cheese, package juice, can and freeze vegetables, and do construction and landscaping work .

According to Allen Buechel, Fond du Lac County Executive, “Due to the retirements of a great number of county workers, we will no longer have an adequate home-grown labor force, and our businesses will need to attract people from outside our community. Since we share this problem with everyone, we will need immigrant workers to sustain our businesses.”

Most economists agree that low-skill immigrants are filling jobs that Americans are unwilling to do in sufficient numbers at the wages that are offered.

Paul Schoofs, professor of economics at Ripon College, says, “The evidence shows that immigrants yield a net benefit to the economy, even if we restrict our focus to just illegal immigrants. Illegal immigrants help the economy [by] taking jobs that otherwise would not be filled… at wages that allow the companies to compete in national and global markets.”

Schoofs also points out that many Americans worry that immigrants compete with native-born workers for jobs. They fail to recognize the ways immigrants complement rather than compete with American workers, generating more employment for Americans, not less.

For example, various high tech industries nationwide rely heavily on immigrants with engineering, computer and science skills that too few Americans have. (One joke has it that Silicon Valley was built on ICs – not integrated circuits, but Indians and Chinese.) In 2000, more than half of all the engineers in Silicon Valley were foreign-born, and foreign-born entrepreneurs had established companies employing tens of thousands of Americans.

Locally, Ripon College hired its second Chinese economist recently – a majority of the applicants for the position were foreign.

However, if the U.S. economy as a whole would suffer without immigration, there are both winners and losers in the emerging economic patterns.

Cheaper Labor

Depending on whether you’re a factory worker or a factory owner, immigrant labor is either a boon or a bane. One local employer says he couldn’t keep his doors open without immigrant workers. Native-born workers counter that the problem is his wages and conditions, and that if immigrants didn’t fill those jobs, he’d have to raise wages and then American workers would gladly keep his doors open.

What if the immigration spigot were turned off? Some companies that do not face international competition would probably raise wages and benefits – and the prices of the goods they produce. Others would be unable to compete and would shut down, and still others might be prompted to set up shop overseas.

When Alliance Laundry Systems threatened to do just that a few years ago, it was able to wrest wage and benefit concessions from the union. That the company has some immigrant workers could be seen as something of an economic compromise. Hiring immigrant workers to fill out the (still mostly American) labor force may make it possible to keep the factory here – but not at the wages that workers were accustomed to in the past.

Jill Stiemsma, Moraine Park Technical College sociology instructor points out that as long as international capital is more mobile than labor, businesses can always move – or threaten to move – to another country to reduce their costs.

Ellen Sorensen, formerly of Ripon’s Chamber of Commerce and currently Chief of Staff for Fond du Lac County, said “Ripon’s work force has become more diverse because there aren’t enough people in Ripon to fill the jobs. If the immigration spigot were turned off, Ripon’s economic wellbeing would be compromised. We’d be hurting.”

How much lower are U.S. wages because of the influx of low-skill workers? After reviewing several studies on the subject, The Economist magazine estimates the reduction to be on the order of 2-5% -- mostly at the bottom of the wage scale.

Cheap Goods

If some American workers get a skimpier paycheck because of low-wage immigrants, all American consumers reap the benefits of low prices at the check-out counter. Furthermore, cheap labor lowers the price of many goods, and thus raises the demand for those goods. This in turn generates more jobs.

Mexican drywall and masonry crews, for example, help keep the price of new houses down, thus increasing the demand for them -- and keeping more American electricians and plumbers employed. While some immigrants compete directly with American workers, others complement the skills of native-born workers and increase their employment opportunities.

Entrepreneurship

Immigrants are often highly entrepreneurial. Asians start businesses at two and Mexicans at three times the rate of native born Americans. About half of Ripon’s independent restaurants are owned by immigrants (Kristina’s, The Red Apple, China 1, Republican House and formerly Cortez’s) as well as an additional downtown business (Aneh’s Fine Foods).

Taxes and Services

If immigrants are on the whole a good thing for the economy, how about for taxpayers? Do immigrants consume more in services than they pay in taxes?

On a national level, the news is generally good. One national study found that immigrants, both legal and undocumented, pay on average $80,000 more in taxes than they consume in services over the course of their lifetimes. (See sidebar, “Do Illegal Immigrants Pay Taxes?”)

It is very difficult to get overall data on how many undocumented workers are working under the table (and thus avoiding payroll and income taxes), but the evidence suggests that locally, informal employment is not a major economic activity for most undocumented workers. None known to this author have relied on informal sector work for more than a few months at a time, or for more than a fairly small percentage of total annual household income.

There are a few government programs that may be accessed by non-citizen and/or undocumented immigrants. Several households known to this author have received food stamps, WIC (Women, Infants and Children nutrition program), Headstart, and free or reduced-price school lunches. Sometimes only the citizen children receive these benefits. Many immigrant families do not apply for programs for which they may be eligible, for fear of being identified as undocumented.

Education of immigrant children can be a significant outlay of tax dollars for some communities. In the case of Ripon, the state aid that comes with each child (about $6600) is three times the cost of extra language services (about $2000 per child). It is not clear that either Ripon’s taxpayers or school district would be better off without ELL immigrant children, particularly in this time of declining enrollments.

Also, 70% of immigrants arrive during prime working age and we spend nothing on their education. Furthermore, many, particularly from Mexico, leave as they get older and are unable to work. Only 7% of immigrants in the U.S. are over the age of 50; few of them rely on government health or other benefits claimed by most elderly citizens.

This author knows several Mexican immigrants who have returned to Mexico or who plan to because of advancing age, ill health, and an inability to perform physically demanding jobs. Ripon didn’t educate them, and Ripon won’t care for them in their old age – but our local businesses will have benefited from their prime working years.

Charity

The evidence suggests that some local charities are serving a disproportionate number of immigrants. The Salvation Army, various holiday season charities, some churches, area free clinics, and other local groups have helped a number of immigrants in crisis. To some degree, the problem isn’t immigrant status per se, but poverty. However, the vulnerability of undocumented immigrants is more extreme, and more likely to lead to dependence on charity when things go badly.

Immigration Enforcement

What is the cost of keeping out or deporting those who have not received permission to enter the country? Between 1986 and 2002 the number of border enforcement agents tripled, the Border Patrol’s budget increased tenfold -- and the number of undocumented immigrants in the country more than doubled. In 2006, Immigration and Citizenship Enforcement (ICE) arrested 20,000 undocumented workers in workplace raids, and deported a total of 185,000 individuals. This represents less than 2% of all undocumented individuals in the country. ICE’s budget for FY 2007 was $4.7 billion.

Thumbs up or down?

The evidence suggests that locally as well as nationally, the overall economic benefits of immigration outweigh the costs. However, the benefits and costs are not evenly distributed. Low wage workers have seen their wages fall somewhat further and faster than they would have without a supply of low-wage immigrants. Consumers have benefited from lower prices, and producers from higher aggregate demand. Many American workers have had their opportunities expand from the presence of immigrant workers with complementary skills. The federal government and Social Security have taken in billions of tax dollars from individuals who do not qualify for many benefits or services. Local charities may be stretched by the needs of economically vulnerable immigrants, particularly the undocumented.

Sidebar: Do Illegal Immigrants Pay Taxes?

All immigrants, undocumented or not, pay sales taxes, all pay property taxes (directly or through rent), and all those with formal sector employment pay Social Security taxes. Depending on their income level, they also pay state and federal income taxes. In fact, because many have taxes withheld from their paychecks and then do not file a tax return, they are paying taxes they do not owe. As Ripon College’s Schoofs points out, “Many of these [undocumented] immigrants would qualify for income tax refunds if they were to file for them, but they don’t for fear of being detected.”

Non-citizen legal residents must pay all the same taxes as citizens, but do not qualify for all the same benefits (such as welfare.) Undocumented workers pay into Social Security, but will never qualify for benefits because they are using made-up Social Security numbers. The Social Security Administration holds tens of billions of dollars paid into the system by such individuals.

Sidebar: One employer tells his story

I started farming 14 years ago. My workers were all white. The turnover rate was very high, people were unreliable – they just wouldn’t show up. Hispanics started showing up at my farm asking for work. One day I had work so I hired the guy. Then I hired his son, then his daughter, and eventually I replaced all but two of my white workers with Hispanic workers.

I have two families now, and I just keep hiring members of their families. I don’t run ads any more. I can put in ad in the paper and get 60, 80 calls from guys who are desperate for work, but they haven’t been working for months, they can’t tell me who their last employer was, and I can tell they won’t be reliable.

I rely on these two families to get me more help if I need it. They take care of the training, they know my expectations, and they never bring anyone who wouldn’t live up to that.

I have 450 cows and 12 workers, including my brother. I pay them all $10-14 an hour, with paid vacation and holidays. I offer health insurance or more money per hour, and the Mexicans always take the money. For health care they go to the Samaritan Free Clinic in Fond du Lac. They work 60 hours a week.

I fill out an I-9 form [saying that the workers are here legally] for all my workers – they can all show me documents for that. But then after they’ve been here a while they tell me their life stories, and I find out they’re illegal.

They don’t want to be. I believe each of them would be legal if the process were made simpler and cheaper. The first guy I hired and his son, they have green cards now – I sponsored them. But it took five years and $5000 each.

[If there were an immigration raid] it would be initially devastating to me. We milk around the clock. Cows can’t wait. But I think the chances of it happening are slim. I fill out the forms, we pay taxes, we treat our Hispanic workers the same as our other workers – we do it right. I think this [talk of cracking down on immigration] is just political hot air.”

Sidebar: Immigrants and Fond du Lac County’s Economic Future

Ironically, while many Americans are concerned with how to reduce the flow of immigration, others, including Fond du Lac County’s government and business community, are trying to figure out how to attract the diverse talent – including immigrants – that they see is the wave of the future. Their effort is the Comprehensive County-wide Diversity Initiative (CCDI).

In November, 140 local business and civic leaders, including representatives from Ripon, convened in Fond du Lac to listen to Heidi Moore, corporate diversity expert, tell them what was coming and how to prepare for it.

Graphs and charts on demography and economic trends made it clear: if Fond du Lac County expects to succeed in the 21st century, it can’t just grudgingly accept a more diverse workforce – it will need to get out there and compete for it. Only 30% of the workers currently entering the labor force are white men – the other 70% are women, minorities and foreign-born. Racial and ethnic minorities are also a rapidly growing share of the consumer population that businesses need to market to.

Attendees at the event talked in small groups about their challenges and successes in competing for talent, developing and marketing products for minority communities, hiring a more diverse workforce, and learning to manage racial and cultural diversity among employees.

Allen Buechel, Fond du Lac County Executive, feels the time is right for this kind of coordinated effort. “People talk about rotten apples spoiling a whole barrel. Well, a ripe apple ripens a whole barrel, too.”

CCDI’s steering committee is continuing to meet to move the Initiative forward; several upcoming events are planned. For more information on CCDI go to the County’s website at http://www.fdlco.wi.gov/Index.aspx?page=997.