The Impact of Illegal Immigration on the Service Sector

The Impact of Illegal Immigration on the Service Sector Tyler Joseph, Brian Klingenberg, Andrew Kretz, Chelsea Mack Ohio Northern University Abstract Knowing that the United States of America is the land of the free and provides many opportunities for its inhabitants, millions of illegal immigrants flock to the country in hopes of pursuing a better lifestyle for their families. In order to achieve this goal these individuals search for work which they usually find in service-related industries due to a lack of English skills, education level, and/or the willingness of some employers to hire illegal immigrants without documenting them. Having a labor force that is partly made up of illegal immigrants does have negative impacts on U.S. citizens that mainly relate to the availability of jobs, health, and taxes. At the same time, though, illegal immigrants working in the service sector of the U.S. economy does have positive aspects including increasing the labor force and helping the economy turn around through consumption of goods and services. After reviewing this data we propose that the United States create workshops for illegal immigrants to achieve citizenship that teach English and other necessary skills needed to live in the country. Introduction Illegal immigration to the United States refers to the act of foreign nationals violating U.S. immigration policies and national laws by entering or remaining in the United States without proper permission from the United States government ( Illegal, n.d.). The U.S. economy contains four different sectors when referencing the nature of jobs. The first, or primary, sector involves any type of work that deals with extraction. Examples of these job types are mining of any kind such as coal, diamond, gold, drilling including oil and gas, fishing, and agriculture. All of these jobs entail harvesting something from the earth in order to process it and use it for a specific purpose ( Tertiary, 2008). The secondary sector includes jobs that involve manufacturing. Job types in this sector can be completed both within and outside the home. The manufacturing sector s function is to produce goods from raw materials (Amadeo, n.d.). The third, or tertiary, sector is the service sector of the US economy. The work related to this sector produce services which is the opposite role of the manufacturing sector. This sector of the economy can include jobs in healthcare, education, retail, restaurants, and cleaning services ( Tertiary, 2008). The fourth sector is the quaternary sector which involves more intellectual jobs. These professions can provide consultation services, information sharing services, and involve research 1

and development. The pharmaceutical industry is a primary example of an industry that utilizes the services of the quaternary sector. This fourth sector is found in well-developed countries, which is a reason why the United States contains the sector in its economy ( Quaternary, 2009). There is also debate about whether or not a fifth sector of the economy exists. This sector would be an extension of the quaternary sector called the quinary sector. The main difference between this sector and the service or quaternary sector is that the quinary sector involves producing pure services. Entertainment would be an industry that is the best example for this industry. The quinary sector touches fields dealing with research, culture, and health ( Quaternary, 2009). According to USA Today, 4% work in farming, 21% in service industries, 19% in construction and related occupations, 15% in installation and repair, 12% in sales, 10% in management, and 8% in transportation ( Illegal, n.d.). Our paper will focus mainly on the service sector of the economy. The graph in figure 1 shows the percentages of workers in the individual sectors. The numbers are really different than the above numbers and this goes to show that the government or any agency cannot get an exact count of where the illegal immigrants work. Figure 2 is another visual that shows the location of illegal immigrants within the United States. There exists three different ways that a person becomes an illegal immigrant. One could enter the country without authorization or inspection, overstay their visa, or take part in visa fraud. There are an estimated half million illegal entries into the United States every year. The most common way for immigrants to gain illegal entry into the country is by paying professionals to smuggle them into the country. Coyotes are an informal name given to those professionals operating on the US Mexico border. Some travelers enter the country with visas and if they don t leave after their visa has expired, they are considered to be here illegally. Most individuals who overstay their visas enter with tourist or business visas and those who overstay seem to be more educated and better off financially than those who entered the country illegally. In 1994, more than half of illegal immigrants were individuals who overstayed their visas. This is opposed to 2006, where roughly 45 % of illegal immigrants were individuals who overstayed their visas ( Illegal, n.d.). The last way is through visa fraud. The most common way for an immigrant to obtain a visa on false pretenses is through a green card marriage. This is when a foreigner marries an American to avoid immigration law rather than because of true love and building a life together. Through marriage the foreigner is allowed permanent residency and even potential citizenship because there is a law that allows spouses of citizens and permanent residents to obtain visas. There are a few different types of green card marriages. One is mail order bride arrangements. Another is phony arranged marriages, as opposed to legitimate arranged marriages in cultures that practice them. A third way is when the American resident is paid. The last way is when a foreigner tricks their American counterpart into believing that they really do love them, when in the end all they really want is a green card ( Illegal, n.d.). According to the Pew Hispanic Center report in 2005(also shown in figure 3), 57% of the immigrants were from Mexico, 24% from other Latin American Countries, 9% from Asia, 6% from Europe, and 4% were from the rest of the world ( Illegal, n.d.) Once the illegal immigrants get to the United States, 2,450,000 people live in California and 1,380,000 people live in Texas. The next three highest are Florida, New York, and Arizona. 2

There are four main reasons why foreigners (mainly Mexicans) want to move here. These reasons are economic incentives, chain immigration, US government inefficiencies, and trade agreements and government failures. The first thing an immigrant does when they successfully make it into the United States is search for a job. Most foreigners make more money in this country then they did in their home country and employers are willing to hire them because they can hire them to reduce costs and expenses. Also, Mexico stated that remittances are their biggest source of foreign income, which is higher than oil, tourism, and foreign investments. A remittance is a transfer of money by a foreign worker to his or her home country ( Illegal, n.d.). In 2003, the income generated reached a record of $12 billion and in 2005 the World Bank stated that Mexico was receiving $18.1 billion in remittances. They were ranked 3 rd behind India and China ( Illegal, n.d.). The second motivation of immigration is chain immigration. This is when foreigners move into a country a couple years after one of their relatives have moved there and established a job and living arrangement. This has produced a network effect in the United States and has created mini communities of illegal immigrants among legal immigrants with valid visas or citizenship status. The third motivation of immigration is US government inefficiencies. Analysts believe one of the reasons that foreigners come here illegally is that they are impatient because of the costs, delays, and inefficiencies in processing visa applications and work permits. In 2007, there was a backlog of 1.1 million green card applications with an average waiting period of three years ( Illegal, n.d.). The last reason a foreigner would want to migrate here is because of trade agreements and government failures. The Mexican government has done many things that have almost encouraged emigration from their country to the United States. They have failed to make investments, which they have promised, of billions of dollars in roads, schooling, sanitation, and housing to accommodate newly built factories for the employees. This led to only a couple factories being built and China surpassed Mexico in the goods produced for the United States market. This caused a dramatic decrease in manufacturing jobs from 4.1 million in 2000 to 3.5 million in 2004. Also, more efficient agricultural operations in the United States and the elimination of tariffs under NAFTA (North American Free Trade Agreement) has caused the price of corn to drop 70% in Mexico from 1994 to 2001 and the number of farm jobs to decrease from 8.1 million in 1993 to 6.8 million in 2002 ( Illegal, n.d.). Corruption in the Mexican government has had a great impact on the economy of Mexico which in turn leads to migration to the United States. In 2006, Mexico was ranked as the 72 nd least corrupt state out of 179. In comparison, the United States was ranked as 20 th least corrupt. Global Integrity estimates that in 2006, corruption cost the Mexican economy roughly $60 billion per year. These are just a few of many reasons why foreigners, mainly Mexicans, are coming to the United States looking for jobs ( Illegal, n.d.). Table 1 gives a historical timeline of events related to Immigration laws. Negative impacts When a country (an economy) is hosting a vast number of illegal immigrants such as the case for the United States, there are negative aspects related to the situation. Many of these 3

negative factors are financially-based and result in impacting U.S. citizens or legal residents in a negative manner. The health care of illegal immigrants is a matter that negatively affects citizens. The Emergency Medical Treatment and Active Labor Act was passed in 1986 under the Reagan administration. This act allowed the provisions of emergency care for illegal immigrants. This care extends to serious injuries that could be life-threatening such as excessive bleeding, or heart attacks. Therefore the emergency care does not consist of wellness checkups or prescriptions for antibiotics. This Emergency Medicaid is provided for an individual regardless of their citizenship or non-citizenship status, or their income-level ( Emergency, n.d.). Since illegal immigrants are the main recipients of this emergency care they are usually unable to reimburse the hospitals for their services, so the burden falls on U.S. citizens through their taxes. With the extra costs U.S. citizens are required to support both themselves and the illegal immigrants which means that citizens receive even less from their paychecks with the added tax. Though illegal immigrants can receive emergency healthcare, they are not entitled to health insurance coverage. Since employers do not have to provide the benefits of health insurance for the illegal immigrants some employers are more willing than others to hire them. According to Ezra Klein (2009), without health insurance illegal immigrants are more susceptible to spreading germs and possibly contracting sicknesses quicker than individuals with health insurance. Although working illegal immigrants have a tendency to be young and healthy they are still vulnerable to the common cold or flu. The lack of simple access to the medicines necessary to take care of the various conditions combined with the nature of the jobs in the service sector, illness is bound to spread. Not only do the illegal immigrants place themselves in danger of sicknesses spreading, but also the U.S. citizens working alongside them as well as the employers and customers. The daily, potential risk of becoming sick may possibly compel citizens to increase their coverage in order to receive more benefits which could raise the prices of their insurance, although there is no factual evidence to support this claim. This option of employers to hire the illegal immigrants allows the employers to pay less and yet receive more labor. U.S. citizens are once again affected negatively by this decision of certain employers because the illegal immigrants are filling positions that citizens could easily fill. This move results in fewer citizens working and consequently less income for some citizen households. As mentioned before with the Emergency Medicaid, taxes are another issue that negatively impact U.S. citizens. Living in the United States, just as in most other countries, require certain living costs to be incurred by individuals. Illegal immigrants incur costs including free school lunches, federal aid to schools, food assistance programs such as food stamps, federal prison and court systems, treatment for the uninsured, and Medicaid as stated earlier. The Federation for American immigration Reform (2003) compiled data for the amount of total costs incurred by illegal immigrants and the amount paid in taxes by them for the year 1996. In this year costs amounting to $32.74 billion were incurred, and of this total only $12.59 billion were repaid through taxes by illegal immigrants. The Center for Immigration Studies (2002) gathered similar data for the year 2002. Total costs accumulated by illegal immigrants equaled $26.3 billion of which they paid $16 billion in taxes. Though the ratio coverage increased from 38% to 61% between the two years, the remaining percentages of costs fall in the lap of U.S. citizens. This means that citizens pay billions more in taxes than they should due to the presence of illegal immigrants. 4

There are illegal immigrants that pay taxes as shown by the numbers previously stated, but this does not include all, or a majority, of the illegal immigrants. A tendency of employers is to pay their illegal employees under the table, meaning that their income is not documented. Therefore the government is unaware of individuals that are actively working and the workers are not taxed. Their undocumented income sets them up for welfare benefits in addition to their regular incomes because they are unemployed according to the government. The question of how they are able to receive these benefits may arise and the answer to that question is the citizenship status of their children (Federation, 2002). While the parents may be living in the country illegally, the government is still entitled to care for their children. In order for this to happen, the welfare benefits are allotted to the parents so that they can provide for their children accordingly. This welfare allocation to the illegal immigrants also affects U.S. citizens because both groups are receiving provisions at the same time. Fewer lower-educated Americans work as a consequence of the illegal immigrants filling the positions for which they would qualify. For this reason more Americans depend on the welfare system to survive and without an increase in the quantity of benefits, the same amount of provisions are distributed to a growing number of recipients (Amato, n.d.). Given that some illegal immigrants have access to the welfare system, even a smaller amount is allotted to each household. Low- income or less-educated citizens are left to provide for their families by means other than what was originally intended for them. Positive impacts Although there are several clear negative aspects to illegal immigration, the positive impacts far outweigh the negatives. The United States economy could not survive without the contributions of illegal immigrants. Illegal aliens contribute a lot to the economy through taxes and consumption of goods and services. They also provide an extremely important source of cheap labor. All of these positive factors benefit America, while the negatives of illegal immigration only affect a small group of mostly uneducated American citizens. All illegal immigrants who reside in the United States pay some form of taxes, consume American goods, and provide labor for American employers. Tartar (2009) reports the estimated amount they contribute through their consumption and production is close to $800 billion a year. They consume about $400 billion to $450 billion a year, which is 90% of the wages the undocumented worker population makes per year. This contrasts many peoples beliefs that illegal immigrants send all their income they make in America back home. Most immigrants are young able-bodied people looking for work. Since they are younger they tend to be healthy and are not able to collect Social Security or Medicare for many years, although they pay into the system with payroll taxes, often with fake social security numbers. Most illegal aliens do not receive federal welfare benefits of any kind even though they often pay income taxes through paycheck withholdings. More than half of these illegal immigrants have payroll taxes deducted from their paychecks. This helps to decrease the government s deficit and contributes to America s health care, education, transportation and other sectors. 5

Many opponents of illegal immigration cite the costs of illegal immigrants living in the United States. According to Edmonson (1996) this includes $3.1 billion provided for the public education of the illegal residents children, the $471 million in prison costs for illegal aliens, and the $445 million paid to illegal immigrants through Medicaid. Hearing this part of the story alone makes it seem like a severe problem that heavily strains the economy, but this is only a small part of the overall picture. These numbers are easily offset by the $1.9 billion paid in taxes, the $400 billion to $450 billion in consumption and their contribution to American companies production. Not only do illegal immigrants contribute to the economy through their production and consumption, but they fill millions of essential jobs that are low paying and not easily filled with American labor. The millions of job created from the cheap labor provided also result in subsidiary job creation, which means it creates many more jobs in higher up positions such as management. The cheap labor is necessary because of the diminishing market for cheap labor in the United States. The continuing improvement in America s public education has led to a higher graduation rate. This results in a smaller population of unskilled labor that is required for many jobs in the U.S. economy, especially in the service sector. Hanson (2009) shows the decrease in low skilled native-born American citizens in the labor force has caused a heavy dependence on unskilled immigrants both legal and illegal. Since the vast majority of illegal immigrants work in low-skill, low-wage jobs they are a perfect source to fill the necessary hole in our labor source. Opponents of illegal immigration claim that the illegal immigrants take jobs that Americans could have, but due to the nature of most of their work this claim proves to be false most of the time, but according to Davidson (2006) most Americans would notice little or no difference in their paycheck if all the illegal immigrants suddenly disappeared because Americans usually do not directly compete against illegal immigrants for jobs. One should also consider that most of the people hurt most by illegal immigration had every opportunity to graduate from high school, which usually leads to a better job and better wages in the long run. Also, due to the fact that the typical Mexican worker makes one tenth of what their American counterpart does and an undocumented worker makes 20% less than they would if they were legalized the cost of production is significantly reduced. This means the cost of goods requiring a lot of low-skilled labor are significantly reduced. It also allows the producer to invest more in technological innovation and other factors to increase productivity rather than paying higher wages. Illegal immigrants may seem like the victims here because they make less than minimum wage and they are often depicted to have extremely poor living conditions. But the illegal immigrants benefit as well, they make much higher wages and experience much better living conditions in the United States than they would back home. Another benefit of the source of cheap labor provided through illegal immigration is that they immigrate according to the state of the economy. Demetrios G. Papademetriou and Aaron Terrazas (2009) found that illegal immigration levels are at their highest when the economy is strong, but during recessions such as the one in 2007 the number of illegal immigrants sharply declines. This idea does not just hold true nationally, but also regionally. The undocumented workers tend to migrate towards regions that require the cheap low-skilled labor they are willing to provide. 6

Proposals of Others For the past several years, illegal immigration has been a hot topic that has brought about a great deal of controversy. Politicians and citizens of the United States are split on their feelings about the situation. For several people, the idea of having illegal immigrants in the states is quite troublesome due to the fact that they might not pay all of their taxes or they can reap benefits that are only supposed to apply to U.S citizens. These people want an answer to this issue that will rid the country of the immigrants and they want it fast. For some people, they see illegal aliens as people who are trying to improve their life by moving to a country that is known to prosper. They can t help but empathize and in a way support the immigrants. They too are seeking solutions to the issue that would benefit the aliens where they could stay within the borders of America and eventually gain citizenship. For those in opposition to allowing the immigrants to remain in the country, they want them gone rather quickly. Their solutions consist of deportation and/or adding extra layers of fencing along the U.S/Mexico border. For those who would like to see the immigrants gain citizenship and remain in the country, their solutions are all based around the idea of amnesty, or the granting of citizenship. Each of these parties, one in opposition to allowing immigrants to stay and one that agrees that they should be allowed to stay, present several pros and cons. In the end, Team BACT has come up with a solution that they think would be the most realistic and likely to happen. One of the major proposals to the illegal immigration issue is the removal of them by deportation. Some people would like to see the close to 12 million immigrants in the country rounded up and taken back to their home country. This proposal has its pros and cons like any other suggestion however the cons tend to outweigh the pros. The idea of rounding up 12 million people who are residing in a country illegally in the first place doesn t seem realistic. There is hardly a way to find every illegal resident in the country and send them back to where they came from. Not only this but the cost to round up the aliens would be extremely high, plus this method would take an extended period of time. According to Edwin S. Rubenstein, President of Research Economic Consultants (2006), it would cost around 206 billion dollars over a five year period. Other economists and politicians are claiming that the time it would take would be even longer. Former secretary of the U.S department of Homeland Security, Tom Ridge (2006), is saying that at current rates of deportation, which are at an all time high, it would take close to 70 years to remove the 12 million illegal immigrants we have now. This doesn t include the amount of illegal immigrants that will enter the country during that 70 year period. Also, it doesn t completely make since that when we do seize illegal immigrants and deport them we take them within walking distances of our borders. Another major proposal that is gaining popularity is to legalize all of the current illegal aliens in America or grant amnesty. Amnesty is defined as granting legal status to a group of individuals unlawfully present in a country (Spalding 2007). Although many people become outraged at the thought of this, it seems to be one of the more realistic proposals to the issue. Jacqueline Bhabha, Executive Director of the Harvard University Committee on Human Rights Studies (2007), stated: [amnesty] is used to suggest a sort of forgiving of law-breaking. It is used in a loaded way to suggest that we are meant to be a law-abiding society, but we are not really playing by our own rules." This argument is clear and to the point. However, many people 7

like Nathan Thornburgh, Senior Editor of TIME Magazine (2007), say that [Amnesty] sounds counterintuitive, but with immigration, forgiving a crime may be the best way to restore law and order. A suggestion that continues to grow in popularity is the idea of building up to 2,000 miles of extra fencing along the U.S Mexico border. This sounds like a fairly reasonable suggestion. But the way that the government is planning on bringing this fence about is perhaps a little out of line. The government plans on hiring companies that are affiliated with the military to build up the borders. They also plan on hiring ex military members to help patrol the borders. The problem with this is that the illegal immigrants that come to America are not combatants. Their intent is not to harm America, but simply to find a better life. Also, around half of the illegal aliens currently in America came over legally, but they stayed past what their visa would allow. Not only will this, but the cost to build this fence alone cost upwards of 9 billion dollars according to Jason Ackleson, Assistant Professor of Government at the University of New Mexico State (2005). Tony Zavaleta, Vice President of External Affairs at the University of Texas (2007), points out that this fence would split the University of Texas at Brownville right in half. Our Proposal Team BACT has proposed several ideas in an attempt to solve the problem of illegal immigration. We have decided that amnesty is the most realistic and likely solution to the problem and we have added some suggestions to the idea. First, we would require that every illegal immigrant attend mandatory workshops that would educate them on basic English skills and provide lessons of American history. This course would run for several weeks and the failure to complete the course would result in the denial of American citizenship. Also, each illegal immigrant would pay a one thousand dollar fine for breaking the law by residing in America. We as a group also propose that the number of people in charge of patrolling boarders be raised and the punishment for people who hire illegal immigrants be greater with harsher fines and increased prison time. 8

Figure 1 Figure 2 9

Figure 3 Table 1 1790 - Any free white person could apply for citizenship after two years of residency. 1798 - Alien and Sedition Acts 14 years of residency before citizenship and provided for the deportation of "dangerous" aliens. Changed to five-year residency in 1800. 1864 - Contract Labor Law allowed recruiting of foreign labor. 1885 - Contract Labor Law. Unlawful to import unskilled aliens from overseas as laborers. Regulations did not pertain to those crossing land borders. 1917 - Immigration Act provided for literacy tests for those over 16 and barred all immigrants from Asia. 1948 - Displaced Persons Act allowed 205,000 refugees over two years. 1952 - Immigration and Nationality Act eliminated race as a bar to immigration or citizenship. 1986 - Immigration Reform and Control Act provided for amnesty for many illegal aliens and sanctions for employers hiring illegal immigrants. 2001 - USA Patriot Act amended the Immigration and Nationality Act to broaden the scope of aliens ineligible for admission 10

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