The Immigration Effect: Boom or Bust for Business

by Joe Bardin

Immegration EffectImmigration is often discussed in moral terms of right and wrong. Is it right to exclude children born and raised in the U.S. from an opportunity to live legally in America because their parents entered illegally? Isn’t it wrong to give people who broke the law by smuggling themselves into our country a path to legal work status and even citizenship? These may be points for ethicists to debate, but what is the economic bottom line? Is immigration bad for business, or good?

To answer this question, some historical perspective may be helpful. “The story of a huge amount of Arizona’s growth can be attributed to Baby Boomers looking to prosper and start a new life in the West, in the ’70s and ’80s,” says Professor Dennis Hoffman, director of the L. William Seidman Research Institute at the W. P. Carey School of Business at Arizona State University. “They figured out productive things to do with affordable land, cheap workers and a booming population, and they made a lot of money.”

“Cheap labor” typically has meant undocumented labor. While business owners may be understandably uncomfortable speaking about this publicly, Hoffman says, “When you talk to the long-time business owners in the Valley, a lot of their success took advantage of affordable, hard-working, undocumented workers. This is the equation they’ve followed. It’s a fuel to our economy.”

Glenn Hamer, president and CEO of the Arizona Chamber of Commerce and Industry since 2006, addresses the issue in more legal compliancy terms but with a similar conclusion: “Immigration reform done the right way would be a huge shot of adrenaline to the economy.”

Hamer says there are various gaps in the labor force that could be filled through expanded access to immigrant workers. In addition to laborers needed in seasonal work, including hospitality and agriculture, Hamer cites unmet demand for higher-end technology-related capabilities. “The high-tech industry is constantly clamoring to raise the number of H-1B visas,” he says. These visas allow U.S. employers to temporarily employ foreign nationals in specialty occupations, defined as requiring theoretical and practical application of a body of highly specialized knowledge in a field of human endeavor. But technology and seasonal work are just two out of many industry segments that would benefit from more access to immigrants: “Pick a sector and you will find need for international labor,” he says.

Ironically, another potential benefit to the economy and business would be a reduction in federal funds spent on keeping these immigrants out. According to the non-partisan Congressional Budget Office assessment of proposed immigration reform (, “The cost estimate shows that changes in direct spending and revenues under the legislation would decrease federal budget deficits by $197 billion over the 2014–2023 period and by roughly $700 billion over the 2024–2033 period.”

In addition, state revenue would likely increase significantly, as more illegal workers come out of the shadows to pay tax and participate more fully in the economy.

Arizona Senator Jeff Flake, a long-time proponent of immigration reform and one of the Gang of Eight — the bipartisan group of senators that includes Arizona Senator John McCain — who wrote the 2013 Comprehensive Immigration Reform bill, sees the broad benefits. “Across the spectrum of skill levels, from first-time agricultural workers to U.S.-trained foreign Ph.D.s, there are domestic industries that rely and will continue to rely on foreign labor. If our economy is to rebound and the United States is to stay on the cutting edge of innovation in the global marketplace, our immigration system has to ensure that U.S. businesses have access to the workers they need, and that we remain a place for the world’s best and brightest to find a home.”

The argument against increasing the availability of immigrant workers within the U.S. economy is essentially that jobs will be taken away from documented Americans. But it has long been contended that the unskilled, low-paying jobs at the bottom end of the labor market are not actually desired by Americans. Says Hoffman, “I don’t see strong evidence that undocumented workers are squeezing out American youth and unskilled laborers. The data suggests they are such hard-labor/low-wage positions they are hard to fill anyway.”

Interestingly, an analogous argument might be made for STEM-related (Science, Technology, Engineering and Math) jobs at much higher pay scales. In this case, it’s not the jobs that Americans may be steering clearing of, it’s the demanding education required to do the jobs, according to Steve Zylstra, president and CEO of the Arizona Technology Council. “An engineering education is tough,” he says. “There’s a lot of math, chemistry, physics. It’s not easy, and not enough Americans are willing to undergo this rigorous training to prepare themselves to fill the positions that are needed.”

As a result, Zylstra says limits on immigration place the Arizona tech sector at competitive disadvantage. “The most critical challenge facing my members is finding the requisite talent to compete.”

Zylstra suggests that not only is identifying and recruiting such talent from abroad not a job taker, it is, in fact, a job producer. He cites research conducted by William R. Kerr, a professor at Harvard Business School, which found that between 1995 and 2008, when more H-1B visas were granted, overall science and engineering employment actually increased. This suggests that hiring such immigrant employees actually creates more jobs for others.

The case for expanded immigration extends to entrepreneurship as a whole as well. “It’s very common for startups to have some connection to another country,” says Hamer. “Let’s take advantage of this and make it easier for people to start businesses here. This is not 1950. We have a lot of competition from the European Union and China. We have to be aggressive in attracting the best and brightest.”

Seven Dark Years for Labor

If the absence of qualified immigrants hurts job creation at the higher-paying, high-tech end of the workforce spectrum, Hoffman sees a similar impact on the lower-paid, unskilled-labor end of the work force as well. He traces the decline in the Arizona economy to December 2007, when the state “passed the toughest employers sanction bill in nation, and we started to become a poster child for not wanting undocumented workers and immigrants. It’s been seven dark years since then.”

Hoffman says the latest job data for the first nine months of 2014 shows Arizona struggling to reach 2-percent job growth and that it is losing construction jobs. While federal policies, including the Affordable Care Act, have been blamed for Arizona’s weak recovery from the Great Recession, Hoffman points out that Texas, Colorado, Utah, California, Oregon and Washington are all showing more significant growth. Arizona ranks number 14 in total job growth, Hoffman says, but it is 47th in goods-producing jobs, which includes construction and which typically bring more money in to the state. To illustrate the concept of “goods-producing jobs,” Hoffman draws an analogy to a copper mine in a mining town, explaining that as long as the mine is doing well, the whole town does well, but when the mine slows down, so does the barber shop and every other business.

So what is holding Arizona back? Could the weak recovery be exacerbated by Arizona’s reduced access to cheap, undocumented labor as a result of its unwelcoming policies to immigrants? “It doesn’t help,” says Jim Rounds, senior vice president and senior economist with Elliott D. Pollack and Company, an economic and real estate consultant, “but it’s hardly a cause of our weak economic performance.”

Referring to SB1070, the broadest and strictest anti-illegal immigration measure in recent U.S. history, and the major national backlash it caused against the state for being perceived as racist, Rounds contends, “We weren’t impacted by the political fallout because the economy didn’t need those workers at that time, with the state already falling into deep recession. But if the state starts booming, then the question arises, ‘Will we have a shortage in immigrant labor?’”

Rounds attributes Arizona’s weaker than usual recovery to lack of mobility in the U.S. as a whole. “People are frozen everywhere; they can’t get mortgages, they don’t have cash for down payments. Within a couple years, we will see more population movement. When things ramp up a bit, especially construction, we may see labor shortages.”

Does the availability of labor drive growth, or does growth drive the demand for labor? It’s a chicken and egg argument to which there may be no definitive answer. Hoffman concedes he has no hard data to support his perspective. Rather, he shares that, anecdotally, he has heard from enough business people to consider the lack of affordable labor to be a significant factor.

Clearly, the loss of such labor can cause disruptions in business. In August of 2013, the Danny’s Family Car Wash chain was raided by Immigration and Customs Enforcement agents for hiring illegal immigrants. At the Danny’s Car Wash this writer uses, the work force abruptly changed from what had appeared to be almost entirely immigrant Latino to almost entirely non-Latino, and the speed and quality of service suffered. This can hardly be considered good for business.

Hoffman points out that driving immigrant workers underground has spurred the black market in human smuggling and the hardcore criminals, known as coyotes, who profit from it. Conversely, opening legal routes to immigration would do a lot to put coyotes out of business and replace them with legitimate business operations.

The Immediate Need

While demand for increased cheap immigrant labor may be debatable and ultimately dependent on future growth, the need for greater high-tech brain power from abroad is an immediate one, according to Zylstra. “A tech workforce study conducted by ASU for us produced astonishing findings,” he says, noting the current supply clearly does not meet the demand.

The study also looked at patterns of behavior of STEM graduates from ASU, finding that approximately 67 percent remained in Arizona. To Zylstra, this indicates “we are simply not producing nearly enough talent locally.” He adds that “it’s tough all over.” The study found comparable shortages throughout the western states, all of which it characterized as “net importers of talent.”

Zylstra suggests our labor gap in STEM-related fields might be impacted by how welcoming we are to low-wage workers from abroad as well. “Policies like SB1070 send a negative message to foreign workers in general,” he says. “Once they get here, they realize it’s not the case, but those headlines send a message that we’re not as welcoming. When they’re choosing between Denver, Seattle or Phoenix, for example, they will want the place that seems most favorably disposed to foreigners.”

In this context, SB1062, which sought to legalize resistance to same-sex marriage on religious grounds, may be seen as another potential obstacle to attracting expert foreign workers. “Young, innovative people want to live in more progressive places,” says Hoffman. Referring to Tim Cook of Apple, Hoffman notes, “The CEO of the most dynamic business on the planet recently came out as a proud gay man,”

Immigration Done Right

If the business community seems to agree that greater immigration would be a boon for the economy, not a bust, what then are the key elements of an effective immigration reform package?

According to Senator Flake, among others, it’s a four-part issue: strong border security, a legal immigration system that encourages economic growth, a temporary worker program to provide for future labor needs, and strengthened employment verification standards to prevent the hiring of illegals.

This includes the so-called “Staple Act,” which calls for green cards to be offered to any advanced STEM-related degree earned in the U.S. by a foreign national. Says Hoffman, “We need to be stapling green cards to their diplomas instead of forcing these valuable people away after we’ve educated them.”

Zylstra would be happy just to see the number of H-1B visas doubled. “The tech industry would be elated,” he says.

Jim Rounds suggests that education at the lower end of the immigrant labor market, rather than being a drain our local resources, might be vital to our economy. “It may be to our advantage to improve the educational skill set of certain groups of laborers as well,” he says. This would enable them to perform more technical tasks that may be needed to be fulfilled.

“The good news is that people want to live in the U.S.,” Hamer says. “We have the rule of law; we have security. We’ve remained the most desirable place. If we could fix what has become a man-made policy disaster, we would see additional prosperity.”

What Can We Do Right Now?

Seating a new Republican majority in Congress could point to an opportunity for enacting reforms in the near term. But what do we need to do right now to support the flow of immigrant labor needed to support the Arizona economy?

“The Phoenix metro area has always been viewed as a favorable place to live. But we need to stay out of national news on controversial stuff,” says Rounds, referring to SB1070 and SB1062. “When the economy is weaker, it’s more sensitive to politics, so we don’t need to be poking it with a stick.”

Hamer believes that Phoenix has turned the corner on the issue of attracting foreign nationals. “The Valley is doing a great job positioning itself for immigrants,” he says. “I give (Phoenix) Mayor Stanton credit for building a stronger relationship with Mexico, and making a lot of positive enhancements with Canada and China as well.” He points out that Arizona has traditionally welcomed outsiders, “whether from Bangladesh or Boston. It’s an easy place to come in, work hard, and get engaged in the community.”

Rounds is not so confident that state leadership has learned the lessons of the past. “I’m hoping lawmakers realize this is not the time for any more of that stuff [controversial legislation], but I never underestimate the ability of the legislature to do something dumb at any given time.”

Clearly, in the recent past, Arizona has not helped its own cause much in terms of attracting foreign workers and the businesses that rely on them, both at the high and low ends of the pay scale. But, ultimately, the state, like the rest of the country, is waiting on federal legislation to fundamentally alter the current immigrant labor workforce equation.

If and when such reform arrives, Arizona may, ironically enough — given its tough stand recently — benefit more than most. “As a border state, we have a lot to gain,” says Hamer. “Mexico is already far and away Arizona’s largest trading partner, and we’re closer to Asia than Texas,” meaning we’re more advantageously placed than Texas is for increased trade with China. This could be especially relevant in regard to entrepreneurial Chinese nationals choosing Arizona as the location for an American-based business that would enable them to reside in this country. “With immigration done right and our geography,” Hamer says, “we’re going to clean up.”

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