Immigration Problem Our Own Fault

The illegal immigration problem in the U.S. is about how to curb the problem that we created. Politicians practically spar over whether to kick out the people who we couldn't stop from coming in while failing to prevent more illegal immigrants from entering. The best way to stop illegal immigration in the US is to cut off the incentive for immigrant labor. Minimum wage and employer taxation on wages benefit illegal immigrant labor, which takes jobs away from Americans. Removing the economic incentive for this labor could prevent the number of illegal immigrants in the US from growing.

A few years ago, there was an immigration bust in a few Massachusetts fish warehouses. The workers there were being paid between $4-5 an hour and working 40-plus hour weeks. The warehouse owners argued that without paying subminimum wages to these workers, the fishing industry in the U.S. would be destroyed by imports. Hiring illegal immigrants became the only way that this industry would have survived. Otherwise, they would have had to pay more than double the immigrant wages to hire Americans. The fishing industry isn't the only example of this.

In the construction industry, you will also notice small businesses frequently using immigrant labor to perform tasks. Each business is competing against one another and trying to provide lower prices to consumers. Many consumers are very price-sensitive to construction work unless they are overwhelmed with good salesmanship. Most businesses will try to stand out, but it becomes very hard to convince homeowners to pay you if your price is $500 more than all your competitors. That means cost is key, and immigrant labor helps to reduce prices significantly. More interesting is that in this field, immigrant labor can often earn between $10-15 an hour, and it would still be cheaper than hiring an American.

Between 2003 and 2005, there were a several Wal-Mart raids that turned up over 250 illegal immigrants. These immigrants were working for a contracted cleaning firm that succeeded in providing Wal-Mart a low price for the service. These savings, however small or large they might have been, were passed on to consumers and employees; they all benefited from use of that labor. There will continue to be stories about immigration raids, but consider why it's actually happening.

As I said earlier, the problem is taxation and minimum wage laws. A minimum wage is imposed in an economy with the intentions of providing better paying jobs to the lowest paid employees in the country. If any business pays minimum wage (of which there are many), then they are hurt by the imposition of this. Assume for a minute that a business can only afford a set amount of money to pay its workers, for example, $1,000 per hour. Minimum wage was $5.15, so this business can afford to pay 194 workers an hour. If minimum wage immediately increases to $5.50, a modest increase, then the business can afford to pay 181 workers an hour. That means 13 people out of a job and that business is going to make work even harder for the 181 who now have to cover the jobs of 194 people. For the 181 who still work, their economic lives are a little better, but their job is harder and anyone who supported that increase will have to turn a blind eye to the people who they might have thrown on the street as a result of the increase. Some say that's a fair trade.

That's without considering taxes. For every dollar a person makes per hour, the business has to match that dollar with 58 cents in taxes. These taxes are combinations of unemployment, FICA and other wage-related taxes. So, a minimum wage job of $5.15 actually costs $8.14 when business taxes get factored in. So, for the earlier example, $1,000 per hour would actually pay for 122 people to work per hour in the US. And again, if minimum wage was raised to $5.50, the business can only employ 115 people now. Jobs are lost in every case and seeing a combination of minimum wage increases with taxation makes the difference between 79 people having a job or sitting in an unemployment line.

Imposing minimum wage restrictions or taxes on businesses does not mean that businesses will suddenly have more money to pay workers. These firms save thousands of dollars using immigrant labor by simply not paying the business taxes. If a business is ever caught using immigrant labor, then the business will be charged $10,000 per person. In the case of Wal-Marts cleaning crews, if they were paid minimum wage, the business saves $2.97 an hour, and if charged $250,000 per immigrant used, then at 40 hours a week, the business saved that money by having the workers work for only 9 weeks. If the immigrants were in the country longer than 9 weeks, then the business saved more than a small fortune which enabled them to provide Wal-Mart with lower cost services. Many were probably here for a few years before they were caught.

In all, America has a system that benefits too strongly from the use of illegal immigration. These jobs could go to Americans if taxation and minimum wage were relaxed, but many fear that people would be impoverished or worse off because of it. However, immigrants earning less than minimum wage, and who do not pay taxes, do not seem to be suffering at all. In fact, they are sending money home to bring more family members over, while living a nicer life. Recognize that the immigration issue is our fault due to our acceptance of heavy government regulation on businesses and on us.

Daniel Cunningham is a 7th-semester economics major. He can be reached at Daniel.Cunningham@UConn.edu.