Forcibly removing peaceful unauthorized immigrants from the U.S., separating them from their families, property, and jobs, to satisfy arcane labor market regulations created by progressive politicians, is an appalling indecency. It also inflicts significant economic harm. Arizona’s immigration laws have drastically damaged its economy since mid-2007. The humanitarian arguments may leave those who complain the loudest about unauthorized immigration unmoved, but the supporters of Arizona style immigration laws might be persuaded by the economic costs.
In a new Policy Analysis by the Cato Institute called “The Economic Case against Arizona’s Immigration Laws,” I analyze the economic carnage inflicted by Arizona’s immigration laws.
The Legal Arizona Workers Act (LAWA or employer sanctions) was the first such law, and it tried to regulate unauthorized workers out of the market. Its chief tool is E‑Verify, an electronic employment eligibility verification system used to weed out unauthorized immigrants when they apply for a job.
E‑Verify has three major problems. It is very expensive, discourages investment and increases unemployment.
Just to run an employee through costs around $147. Compliance, however, also requires additional human resources and legal services, increasing the financial burden on firms.
The second problem is that E‑Verify scares away businesses, investment, and workers. E‑Verify is tied to what then-Governor Janet Napolitano called the “business death penalty.” Businesses that knowingly hire unauthorized immigrants have their licenses revoked on a second offense, killing the business.
Despite the fact that application of the business death penalty has been relatively rare the prospect has scared investors and businesses out of the state. It was largely responsible for a shocking business formation rate decline of 14.3 percent in the third quarter of 2007 in Arizona, rates of business formation in California and New Mexico increased over the same time.
Entrepreneur Richard Melman halted plans of opening a restaurant in Arizona after LAWA passed said: “You put in $3 million or $4 million, and you can be shut down for a mistake. Why take a chance? I want to see how it plays out.” He wasn’t the only one.
The third problem with E‑Verify is that it increases unemployment. Supporters of E‑Verify like Kris Kobach, the Secretary of State of Kansas and author of many different state level anti-immigrant bills, claim that E‑Verify will force unauthorized immigrants out of jobs so Americans can fill them.
In reality, some unauthorized immigrants are forced out of jobs, which then mostly remain unfilled. In the immigrant heavy farming industry, crop production employment dropped by 15.6 percent in the first 4 years after LAWA was passed. American workers did not fill the gaps. In neighboring New Mexico and California, crop production employment increased over the same time period. E‑Verify explains much of that difference.
Two and a half years after LAWA was passed, Arizona created a more controversial law called SB 1070 to enforce immigration laws outside of the workplace. The combined effects of LAWA and SB 1070 forced about 200,000 people out of Arizona, most of them from the Phoenix area.
In the six years after April, 2006, the home price index for the 20 largest metropolitan areas in the nation declined by 32.9 percent. In the Phoenix area, the price index declined by a whopping 51.29 percent.
The housing bust, combined with forcing 200,000 consumers of real-estate out of Arizona lowered prices further. Homeowner and rental vacancy rates in Arizona were consistently above those in California and New Mexico. For four years after LAWA passed, Albuquerque and Los Angeles even recorded vacancy rates that were 50 to 75 percent lower than those prevailing in Phoenix.
As a result of the triple whammy of E‑Verify, the business death penalty, and the housing price decline partly caused by forcing hundreds of thousands of renters and buyers out of the market, employment in construction collapsed faster and further than in neighboring states.
The economic harm caused by LAWA and SB 1070 is only the tip of the iceberg. Following the next election, when numerous states will begin to consider Arizona style immigration laws, they should pause to survey the tremendous economic toll it has taken on Arizona.
