Illegal Immigration, Businesses and the U.S. Economy

Based on research from Berkley and Harvard University, as of 2014, about 64 million workers aged between 25 and 64 fall into the category of unskilled, meaning they only have a high school diploma or dropped out of high school. The latter account for 20 million, or just under a third of unskilled workers.

These workers tend to earn their living in specific industries, such as construction, food, and agriculture. And this is exactly where most illegal immigrants find work since the majority of them are not qualified for jobs that require a college education. Not surprisingly, in 2014, the Migration Policy Institute estimated that about 18% of the 8.2 million undocumented workers aged 16 and older work in hospitality-related fields, construction (16%), manufacturing (12%) and retail jobs (9%). On the flip side, U.S. Labor Department believes 50% to 70% of all U.S. agricultural field workers are undocumented. To put this into perspective, according to Berkley University, as of 2014, close to 10% of U.S. workers are employed in the restaurant industry, more than in manufacturing.

What about wages? Since businesses employ illegal immigrants under the radar, they don’t need to pay any benefits and can afford to pay less than the minimum wage. One outcome of illegal immigration is lower wages but as The Economist recently asked, who suffers the most? It appears that immigrants mostly compete with other immigrants rather than with native workers. There are several possible answers as to why that is. Again, The Economist summarises: “unskilled natives respond to an increase in immigration by specialising in work that makes better use of their command of English”. In fact, research by the London School of Economics and the University of California suggests that increased immigration has a positive effect on wages of unskilled U.S.-born workers. A case study in the state of Georgia even points to a 0.1% increase in wages for every 1% increase in illegal immigration as companies seem to share the savings that arise from hiring undocumented workers.

Politics aside, how the United States is going to handle illegal immigration will have a significant impact on the economy. After all, undocumented immigrants account for about 5% of the U.S. labor force. Some form of amnesty will likely increase wages. There is a precedent. The 1986 Immigration Reform and Control Act allowed 1.7 million illegal immigrants to become lawful residents of the United States. According to the Wall Street Journal, by 1990, their wages had increased between 5% and 16%. And perhaps the current controversy about the impact of the minimum wage hikes provides some guidance as to what the economic implications of an amnesty could be.

Mass deportation is another answer but it may not have the desired effect. Based on previous such moves, the economy suffered. For example, in Arizona a crackdown on illegal immigrants in 2007 resulted in the state’s GDP shrinking by 2% according to Moody’s. Similarly, in 2014, the University of California estimated that mass deportation of illegal immigrants would reduce GDP by 1.5% annually and destroy 3.6 million jobs in California alone.

I guess there are several ways this can go. Either Trump makes good on his promise within an hour of having been sworn in or he has second thoughts. If he tries to deport, I'd venture a guess and say that this will take years of legal fights. Although I believe that some illegals will leave if only to avoid the uncertainty. How many, I don't know. Probably the ones who have build some sort of life here. The day laborers will probably stick around for as long as they can make some money. 

Clinton won't go for mass deportations but anything she'll try to get immigration reform going will take years. 

My guess is, we will be looking at years of MOTS plus possibly stricter reinforcements of existing and new laws about making it difficult to hire illegals. 

All this goes to say that businesses will likely have time at their hands to prepare. But given the rising minimum wages, even the ones that pay less than that to illegals will have to up the rate as the ceiling gets higher. 

It’s a tricky one but is has to be resolved.