ECONOMIC ANALYSIS: From economic perspective, immigration bill misguided

February 4, 2008

Few issues garner as much vitriol as the debate over illegal immigration. The dimensions of the debate are wide-ranging, but as with most aspects of public policy, they are heavily influenced by economic issues. Indiana has embarked on an immigration debate, so a bit of economics might be helpful.

First, according to the most reliable recent data, Indiana is underrepresented by illegal immigrants compared with neighboring states. I have seen estimates of immigrants in Indiana of between 45,000 to more than 100,000, a number that varies seasonally with the agricultural industry. This is as much as 1.5 percent of our state's population. These workers add perhaps $3.5 billion to our state's economy each year.

Wages for illegal immigrants are undoubtedly lower than wages for either native workers of the same age cohort or legal immigrants (who, because of their tendency for high educational achievement actually earn, on average, more than native workers).

The best evidence concludes that illegal immigration has not affected domestic wages, even at the low end of the scale. And, given that the statewide unemployment rate is just 4.6 percent, illegal immigrants certainly are not costing U.S. citizens their jobs. An American competing with an illegal immigrant has far bigger worries than job competition from illegal immigrants.

Illegal immigrants also use public services: schools, health care and, sadly, the criminal justice system. Illegal immigrants also pay taxes. In Indiana, immigrants pay income tax, sales tax and fees. At the federal level, illegal immigrants who use falsified documents also pay income taxes and payroll taxes, which combined represent 15 percent to 20 percent of their incomes. Illegal immigrants pay taxes exactly like citizens.

Illegal immigrants cannot claim Social Security benefits or income tax refunds, so their marginal tax rate will be much higher than that of native workers. In truth, illegal immigrants are not costly. The net cost to public coffers of an illegal immigrant is actually less than that of a legal resident making the same income.

Ironically, illegal immigrants are probably the only workers with below-average incomes who pay federal taxes.

It is against federal law to hire illegal immigrants. Proposed legislation in Indiana (SB 335) would provide state penalties for businesses hiring illegal workers.

I am afraid of the unintended consequences of this bill. State-level immigration laws increase costs for all businesses. Companies would be forced to alter hiring policies by their insurers, which almost certainly would raise liability rates.

Second, this bill would increase the probability of lawsuits. Third, the bill singles out Indiana as a place with more restrictive employment laws. That won't aid our business climate.

So, as we balance the complex issues of immigration, the economics of the matter deserve some attention.

Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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