Lots of ifs behind bill to replace illegal labor

By David Streitfeld
Los Angeles Times

To understand landscape contractor Barbara Alvarez's position on immigration reform, it helps to know she has an employee with his own chauffeur.

A key longtime worker confessed a few months ago that his driver's license renewal had been rejected. In other words, he was in this country illegally.

Alvarez's solution: Hire an $11-an-hour driver to take the worker to his lawns throughout the day. What else could she do? ``My clients love him,'' the San Dimas entrepreneur said.

Like much of the business community, Alvarez is solidly behind the immigration proposal that emerged from the Senate Judiciary Committee this week. It offers the 11 million illegal immigrants in the United States a path toward citizenship while bringing in 400,000 guest workers.

These changes -- also endorsed by organized labor, Democrats and some Republicans -- are described by supporters as benefiting just about everyone. The undocumented will no longer have to live in fear. Companies will get a more predictable workforce. Society as a whole will be helped when the underground economy moves above ground. Tax revenue will rise.

Yet this prediction of an economic golden age rests on the most slender of assumptions.
It presumes that the flow of illegal immigrants will decrease from a torrent to a trickle. It takes for granted that the government will have the technology to find the illegal workers who continue to get through, as well as the money and political will to enforce the laws that forbid their hiring.

Unless these things come to pass, economists say, the proposed legislation will swell the pool of legal workers while hardly denting the underground economy. Some employers will still have an incentive to hire illegal workers at wages lower than those for new legal workers.

The result: an entrenched two-tier labor system where workers on the bottom rungs compete to drive wages down.

Changing that dynamic won't be easy.

``The risk of hiring undocumented workers has to exceed the benefit,'' said Ross DeVol, director of regional economics at the Milken Institute in Santa Monica. ``Otherwise, there's a substantial possibility we could end up in a worse situation,'' as legal workers compete with a replenished pool of illegal immigrants.

Laws against knowingly hiring illegal workers have been on the books since the 1986 immigration reform. But as Homeland Security and Justice Director Richard Stana testified last year to a House subcommittee, ``work-site enforcement has been a low priority.''

Fraudulent worker documents were so plentiful and so good, Stana said, that companies could convincingly claim that they had no idea their workers were illegal. The number of firms warned they would be fined for hiring illegal workers declined from 417 in 1999 to three in 2004.

As they enter the larger economy, many newly legalized workers will have greater protections and bargaining power. One result: They will earn more. Meanwhile, if enforcement indeed increases, businesses will have more regulatory hurdles.

Companies, in short, will pay up front for reform. Many of these increased costs will be passed on to the consumer as higher prices for restaurant meals, grocery items, child care, car repairs and house remodeling.

That, in turn, could reignite demands for an off-the-books economy.

``People have dual interests,'' said Jared Bernstein, a liberal economist who supports the reforms. ``Ask them, `Do you want your lawn to be mowed as cheaply as possible?' They'll say yes. Ask if they want to control the border. They'll say yes. Ask them if controlling the borders means they're willing to pay more for lawn care, they'll say, `How much?' And that's what we're going to find out.''

Lower-middle-class American workers are not going to benefit from a guest-worker program, said Gordon Hanson, a professor of economics at University of California-San Diego. ``You raise the supply of something, you drive down the price,'' he said.

Legalizing the immigrants already here will move some of that competition up the labor ladder. Hanson gave the example of hotel workers. Many are illegal, which means they're stuck in the worst jobs. As their status changes, so will their positions. The result: More people will compete for the post of, say, assistant manager.

Instead of reform raising wages, as its backers maintain, it could put more pressure on them. Over the past few years, wages have been struggling to keep up with inflation while productivity -- and corporate profits -- soared.

Ira Mehlman of the Federation for American Immigration Reform, a group opposed to the Judiciary measure, forecasts a bleak future ``where everyone is forced to work for the lowest possible pay. The minimum wage will be a ceiling as well as a floor.''

At Golden State Landscaping, Alvarez's enthusiasm for reform doesn't blind her to the toll it could exact. She started the company a quarter-century ago. It has 13 employees, all Latino. Alvarez herself is not.

Last year, she had to drop three workers after Golden State was notified by Social Security that their numbers were invalid. That sort of disruption is hard on a small business. Then she had to hire the chauffeur.

``If legalization pushes wages up, that would be fine,'' Alvarez said. ``Those companies that can't make it work will go out of business.''