Anti-Immigration Policies Could Affect Labor Force, Consumer Prices

By Kelley Emeneker
June 4, 2007 9:25 AM

Imagine a nation where the borders are secure, illegal immigration is a distant memory and all workers have proper documentation.

Then imagine that every working citizen makes at least $20 an hour, a shortage of workers forces you to wait longer for services and crops rot on the ground or vine because there aren't enough workers to pick them.

That's the kind of predicament some say the U.S. could face because of a dwindling labor supply.
 
The U.S. economy relies on the undocumented workforce to support its current level of prosperity, maintain some business and immigration proponents. Within the past few years, the movement to divest the country of these illegal workers has escalated.

Both the public and policymakers usually agree that the situation must be addressed, but they often disagree about what to do and what the impact would be.

Some say the aftershocks of one proposal -- to deport all undocumented workers -- would ripple throughout the economy, affecting rich and poor alike. In particular, agriculture would be hurt.
It's virtually impossible to document and track the number of undocumented immigrants, so estimates are mere approximations. In 2005 the Pew Hispanic Center and the Department of Homeland Security estimated 11 million undocumented immigrants living in the U.S. The Department of Homeland Security figures that 8 million of them are employed.

In 2006, the Department of Labor calculated that less than 10 percent of the total U.S. workforce of 145 million is in agriculture. And as many as 45 percent, or roughly 4 million people, could be undocumented, said Dr. Albert Kagan, an agribusiness professor at Arizona State University-Polytechnic, whose figures are consistent with those put out by the U.S. Department of Agriculture (USDA).

According to the U.S. Department of Labor, 78 percent of all agricultural workers were born outside the United States. If those who are here illegally were deported, it would leave a major void in the workforce.

Economists and policymakers debate whether American citizens would fill those vacancies. Arturo Gonzalez, a research fellow in economics at the Public Policy Institute of California, says it's a difficult question to pin down because so many factors can affect the answer.

"My interpretation is that if tomorrow there was no one to pick oranges, the affect wouldn't be permanent," Gonzalez said. "Wholesalers would then buy from other parts of the world. There'd be a slight increase in price because importing was more expensive than getting the supply from California."

As a result, Gonzalez thinks that farmers would have to find another way to harvest their crops and might mechanize. This is an expensive prospect, however, because many farmers couldn't afford the startup costs, forcing many out of business.

Misconceptions about undocumented wages
An urban myth of sorts is the assumption that undocumented workers and field hands are paid the federal minimum wage of $5.15 an hour or less. Actually, in most places they earn much more. In 2005 the California Employment Development Department reported that field workers there earned between $8.50 and $10.25 an hour. In Yuma, Ariz., good lettuce pickers make $12 to $14 an hour.

"It's not a matter of cheap labor; it's a matter of having the labor at all," said Dawn McLaren, a research economist at Arizona State University's JP Morgan Chase Economic Outlook Center. "Usually 15-to-24-year-olds -- the kids in high school and the ones putting themselves through college -- will come out and do that type of work. "We're not seeing that."

If employers can't fill vacancies, they'll have to pay even more to entice workers into those jobs.

Reducing undocumented numbers
In 1986 the number of undocumented immigrants decreased for a time when the Immigration Reform and Control Act allowed those who had been in the U.S. at least four years to apply for legal immigration status and eventually citizenship. According to the federal government, more than 1 million illegal agriculture workers at the time became legalized through the process. Many moved from agriculture into other vocations.

The American Farm Bureau Federation reported in 2006 that most undocumented workers would leave agriculture if given the opportunity. As a result, farm wages would increase between 15 and 50 percent. The annual losses to U.S. agriculture would range from $1.5 -$5 billion. As many as 20 percent of fruit and vegetable producers would go out of business.

Given its ties to agriculture, the restaurant industry would suffer as well. According to sociologist William Kandel and agricultural economist Ashok Mishra of the USDA's Resource and Rural Economics Division, restaurants employed 9.3 million low-skilled workers in 2005. They estimate that a little more than 1 million were undocumented and that employment demands will increase 20 percent in the next three years. Even if reasonably priced food is available, there might not be enough workers to flip burgers or slice tomatoes.

Deportation: What might happen afterward?
Philip Martin, an agricultural economist at the University of California-Davis, has studied the ramifications of increasing farm wages and labor costs. He said consumers wouldn't see a big difference.

"For a typical household, a 40 percent increase in farm labor costs translates into a 2 to 3 percent increase in retail prices." This means a $3.10 Big Mac would cost up to $3.19.

George Borjas, a professor of economics and social policy at Harvard, told The New York Times that a short-term shortage wouldn't take long to even out. He pointed to states with very few foreign-born residents, such as Iowa and North Dakota. They manage to fill their fast-food and agricultural labor needs with the available population.

Borjas said states affected by a shortage of undocumented workers would eventually entice low-skilled workers from other states to fill the vacancies by increasing the wages. "The workers would be slightly wealthier and the employers would be slightly poorer, but everything would get done," Borjas said.

U.S. Treasurer Anna Escobedo Cabral disagrees with that conclusion. In an address in January 2006 at Arizona State University's W.P. Carey School of Business, she said, "If we eliminate all these people overnight from the economy, there will be chaos" -- and $10 tomatoes.

ASU economist McLaren said deporting all those people would precipitously increase wages. "That labor cost would be so high that agriculture producers would more likely move to capital equipment. Then that puts everybody in the agriculture picking business out of work. Forty-five percent of the agriculture workers are undocumented. That means the 55 percent of the agricultural workforce that's there legally also lost their jobs."

According to both McLaren and Gonzalez, mechanization would lead to higher food prices and increasing food imports. The U.S. would then be competing with other countries for a limited food supply.

The future
The consequences of deporting all illegal immigrants depend on a variety of factors affecting agriculture and related economic sectors. It is highly improbable that all 11 million or so illegal immigrants would be deported. For one thing, that would cost more than the $43 billion annual budget for the Department of Homeland Security.

None of the experts interviewed think that deporting all undocumented workers would result in much higher prices or less food for consumers. Agriculture may be hit hard at first but would eventually recuperate.

Predicting the outcome helps policymakers craft better immigration reform. It helps farmers prepare for labor shortages that might increase costs and decrease productivity.

But it's a scenario nobody can predict with certainty.

Copyright © 2007 Donald W. Reynolds National Center for Business Journalism