Wednesday, January 02, 2008

Arizona economy bracing for immigration crackdown

There are several economic issues raised in the following article. Let’s take one----the effect of labor cost on the (market) price of a product. For our example, we’ll select landscaping services, presumably a product in which labor costs are a large part of the total costs faced by the landscaping firm.

In this analysis we’ll start by dividing the landscaping firm universe into two groups; those who hire illegals and therefore undoubtedly have lower labor costs, and those who hire only legal workers.* Both types face the same demand curve for landscaping services.

But the illegal firm has an advantage over the legal firm, actually two advantages. On one hand, they can price their product at market but make a greater profit because of their lower labor cost (Unfair Advantage #1). Or they can price their services lower than their legal competitors (Unfair Advantage #2). Who wants to talk about fairness?

*I am assuming equal output per hour for both illegal and legal workers.

Gene Cafarelli

Full disclosure: I am willing to pay more for my lettuce if it means that it is produced by my fellow (legal) Americans.

Arizona economy bracing for immigration crackdown

by Scott SeckelSun Dec 30, 6:03 PM ET

New laws targeting employers who hire illegal immigrants take effect here on January 1, with experts predicting the move may cost the state's economy billions of dollars in lost income and taxes.

The new laws are described as the toughest local anti-illegal immigration legislation in the United States , and will sanction businesses who knowingly hire undocumented workers.

Any employer who falls foul of the law will see their business license suspended for 10 days for a first offense; a second infraction will see the license permanently revoked.

Judith Gans, a University of Arizona immigration policy expert who has studied the economic impact of illegal immigrants, said the new law will have a dramatic effect on the local economy.

"Industries will shrink and prices will go up," Gans told AFP.

The price of a hamburger, a head of lettuce, and a week's worth of gardening services will all increase as workforces shrink, Gans said.

Illegal immigrants "are filling gaps in the labor force, and as those gaps widen, prices will go up," she said. "That theory is not contested."

According to an October study released by Gans , Arizona 's foreign-born population has tripled in less than two decades, from about 269,000 in 1990 to 831,000 in 2004.

Experts peg the state's illegal immigrant population at about half a million. Workers, mainly from Mexico , flock to pick lettuce in Yuma , make sushi in Phoenix , and clean hotel rooms in Flagstaff .

According to Gans' study, they make up 59 percent of the workforce in farming; 27 percent in construction; 51 percent in landscaping; 26 percent in hotel work; 23 percent in restaurants; 33 percent in private homes; and 46 percent in textile manufacturing.

Out of every six non-citizens in Arizona , five are illegal, according to Gans. Her study indicates the net 2004 fiscal impact of Arizona illegals was positive by about 940 million dollars, when balanced against costs of 1.4 billion dollars for education, health care, and law enforcement.

A public outcry and inaction by lawmakers in Washington to pass immigration reform laws, led state officials to pass the employer sanctions law.

Local businesses are bracing for the effect of the crackdown.

"Oh yeah, it'll affect us," said Jeremiah, the owner of Around Town Landscaping in Phoenix who estimated that the cost of having a garden mowed will go up 15 to 20 percent in 2008 as a result.

"We're going to lose some qualified guys, for sure. I'll keep my product the same, but it'll affect efficiency. It's a lack of foresight to think it wouldn't affect those things," added Jeremiah, who would not give his last name.

"It's not the right way to go. I don't think people did their homework on it, and no one consulted small companies on how they feel about it," he added.

Construction costs won't noticeably rise, said Julie Fenner, office manager of Hidden Valley Roofing in Phoenix . The company has always screened for proof of citizenship.

"To spread that over the cost of a roof, it's not going to happen," she said. "I can't see costs going up based on that."

Agriculture is expected to be among the industries hardest hit by the new law. Yuma needs about 50,000 pickers during lettuce harvest. Only half that number lives on the American side of the border. Pickers now earn 12 to 14 dollars per hour, said Dawn McLaren, an Arizona State University research economist.

Their wages could rise to 20 dollars per hour.

As more and more farms move south of the border to avoid high production costs, food may have to be imported on a weak dollar, making groceries more expensive.

"If we can't find labor here at a reasonable cost to business, businesses can simply move their business elsewhere," McLaren said. "We may see the cost of having to import stuff."

One Arizona grower recently decided to buy a farm in Iowa instead of investing in his Arizona operations, said Joe Sigg, director of government relations for the Arizona Farm Bureau.

"Banks will start looking at credit risks," Sigg said. "It's going to be more of an economic cloud on Arizona than the cost of a head of lettuce will be. Any prospectus for investors will have to have a flashing sign around it saying, This business may lose its LLC.' I think the investment community will chill on Arizona as well."

Uncertainty about what will happen is as big an issue as anything, Gans said. "We'll see," she said. " Arizona has certainly put itself on the line."

Copyright © 2008 Agence France Presse. All rights reserved.

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Anonymous said...

I own a small landscape company in Arizona and do not hire illegal immigrants.

Competing against companies that hire illegal immigrants definitely puts them at an advantage. If they are hiring illegal immigrants, they are typically also unlicensed, not paying workers compensation or taxes, and doing other unethical or illegal acts.

If you are hiring a landscape company, think about that. Then, when an illegal immigrant gets hurt on your property and has to sue you and your homeowners insurance to pay for their injuries, it is definitely affecting you personally.

James A. Bretney said...

People brought illegals into this country to get around the restrictions that legal citizens deal with all the time.

Now that we are kicking the illegals out, isn't it time to reconsider the wisdom of these restrictions and make it easier for folks like yourself to compete?