Posted on 06/16/2005 7:40:18 AM PDT by ancient_geezer
The Underground Labor Force
Is Rising To The Surface
Robert Justich and Betty Ng, CFA
January 3, 2005
PDF: http://www.bearstearns.com/bscportal/pdfs/underground.pdf
Illegal immigrants constitute a large and growing force in the political, economic, and investment spheres in The United States. The size of this extra-legal segment of the population is significantly understated because the official U.S.Census does not capture the total number of illegal immigrants. In turn, the growth of the underground work force is increasingly concealing the economic impact of this below-market labor supply. Our research has identified significant evidence that the census estimates of undocumented immigrants may be capturing as little as half of the total undocumented population. This gross undercounting is a serious accounting issue, which could ultimately lead to government policy errors in the future.
Though we cannot conduct an independent census of the United States population, as investors, we need not accept the accuracy of the official census immigration statistics, which are widely recognized as incomplete. There are many ancillary sources of data that provide evidence that the rate of growth in the immigrant population is much greater than the Census Bureau statistics. School enrollments, foreign remittances, border crossings, and housing permits are some of the statistics that point to a far greater rate of change in the immigrant population than the census numbers. At the risk of appearing dogmatic or taking a leap of faith, we have applied the rate of growth from these other areas and have drawn several conclusions about the current immigration population:
1. The number of illegal immigrants in the United States may be as high as 20 million people, more than double the official 9 million people estimated by the Census Bureau.
2. The total number of legalized immigrants entering The United States since 1990 has averaged 962,000 per year. Several credible studies indicate that the number of illegal entries has recently crept up to 3 million per year, triple the authorized figure.
3. Undocumented immigrants are gaining a larger share of the job market, and hold approximately 12 to 15 million jobs in the United States (8% of the employed)
4. Four to six million jobs have shifted to the underground market, as small businesses take advantage of the vulnerability of illegal residents.
5. In addition to circumventing the Immigration Reform and Control Act of 1986, many employers of illegal workers have taken to using unrecorded revenue receipts. Employer enforcement has succumbed to political pressure.
6. Cell phones, internet and low-cost travel have allowed immigrants easier illegal access to the United States and increased their ability to find employment and circumvent immigration laws.
We believe that immigration is becoming one of the most significant economic themes of this decade. The investment implications for 2005 and 2006 will hinge on the forthcoming government policy decisions in amnesty, employer enforcement, and monitoring systems, as well as the effective enforcement of the laws. Over the coming year, we intend to monitor and analyze the benefits and costs of assimilating a demographic group the size of New York State into the financial and legal mainstream. Though this challenge is not quite the magnitude of, say, German reunification, we believe most investors are underestimating the magnitude and significance of this theme.
The growing extralegal system in the United States has distorted economic statistics and government budget projections. The stealth labor force has enhanced many of the economic releases that investors follow closely. Payroll numbers understate true job growth and inflation has been artificially dampened by this seemingly endless supply of low-wage workers. The large infusion of the imported labor supply has reduced average annual earnings by approximately 4 to 6 percent. Real estate prices have been boosted by the foreign population infusion. The productivity miracle may be exaggerated because the government is incorporating the output of millions of illegal immigrants but not counting their full labor input. Long-term budget projections are probably overstating the potential growth of the U.S. economy because productivity is inflated. Or, stated differently, are long-term growth projections dependent on a steady flow of illegal immigration that no one is taking into account?
As census procedures improve and the immigration numbers are revised closer to reality, many of these questions will be answered, and public perceptions will change. Many government forecasts, policies and procedures will be modified to compensate for the undercounting. The public sector will incur significant costs in assimilating a reclassified population. An abrupt increase in employer enforcement could have a negative impact on GDP. In the short-term, an adjustment to immigration policies could squeeze small business profits and increase the budget deficits. Longer-term, we believe the effects will be more balanced as this invisible work force provides aid to the demographic problems of social security. Increased enforcement of legal employment procedures should also boost tax revenues.
The implications of these massive inflows of workers are enormous. Although there are economic benefits to cheap, illegal labor, there are significant costs associated with circumventing the labor laws. The social expenses of health care, retirement funding, education and law enforcement are potentially accruing at $30 billion per year. Many of these costs lag and will not be realized until the next economic downturn and beyond as new immigrants require a safety net.
On the revenue side, the United States may be foregoing $35 billion a year in income tax collections because of the number of jobs that are now off the books. Illegal aliens offer below market labor costs and many employers circumvent regulations to take advantage of the laissez faire government enforcement process. We estimate that approximately 5 million illegal workers are collecting wages on a cash basis and are avoiding income taxes.
The United States is simply hooked on cheap, illegal workers and deferring the costs of providing public services to these quasi-Americans. Illegal immigration has been America’s way of competing with the low-wage forces of Asia and Latin America, and deserves more credit for the steroid-enhanced effect it has had on productivity, low inflation, housing starts, and retail sales.
From a personal standpoint, our research does not take sides with any of the emotional arguments of the Crossfire mindset. We are grateful to have had the opportunity to speak with immigrants, local business owners, realtors, and police officers. This project afforded us the opportunity to see into the past and look into the future of the United States.
Continued in source PDF: http://www.bearstearns.com/bscportal/pdfs/underground.pdf
If you would like to be added to this ping list let me know.
John Linder in the House(HR25) & Saxby Chambliss Senate(S25), offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax that all participate in:
H.R.25,S.25
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.Refer for additional information:
Today's wink-and-nod government sanctioned illegal immigration looks a little more to me every day like the modern version of slavery.
Yep.
Every employer that hires them should be put out of business and their assets confiscated under the RICO laws!
In otherwords slave labor enhances production,
provides cheap goods, increases sales, and more housing for the indigent.
Sounds a lot like an old slaver's argument out of the 19th century.
Bump for later reference.
If illegal imigrants are so damned good for the ecomomy, how come raising the minimum wage is also good?
(This question is for Ted Kennedy, et. al. more than you.)
Hey, if you don't agree with that assessment, then why did you post it?
It tends to explain why the cost of housing keeps rising. And, it also explains why nothing is done about it by politicians, who are receiving donations from those becoming rich from the inexpensive labor. It is not going to change. The inevitable consequences are all that is left -- deterioration of values (look at Latin America); bankruptcy of the healthcare system; overburdening of schools and massive problems trying to teach children who cannot communicate well in the English language; drop in wages in many sectors; standard of living decrease on a grand scale for millions and then eventual cultural conflict leading to another civil war.
Hey, if you don't agree with that assessment, then why did you post it?
Is it required that the poster must of necessity be in agreement of all conclusions of an article to post it. Hardly. There are other reasons for posting informative pieces on Free Republic.
Like general discussion maybe? Bringing attention to salient facts about a growing problem?
Well, nice cherry picking with the facts you did there.
It tends to explain why the cost of housing keeps rising. And, it also explains why nothing is done about it by politicians, who are receiving donations from those becoming rich from the inexpensive labor.
There is indeed big money riding on illegal immigrant policy and the economy it feeds.
"On the revenue side, the United States may be foregoing $35 billion a year in income tax collections because of the number of jobs that are now off the books. Illegal aliens offer below market labor costs and many employers circumvent regulations to take advantage of the laissez faire government enforcement process."
Hmm, if one can reasonably assume these folks are earning less than the average income, and thus pay at a less than 5% effective income tax rate on their gross, that represents a potential of over $700 billion in the underground cash economy and illegal trade all by itself.
Well, nice cherry picking with the facts you did there.
Since I didn't write the paper, I'm hardly cherry picking. A $700 billion dollar plus off the books industy is hardly something sneeze at.
I am talking abou the parts of the articles you chose to put in bold.
I am talking abou the parts of the articles you chose to put in bold.
Are you arguing with the figures and points highlighted?
They are a substantial set of points regarding the issues of illegal immigrantion afterall.
You would rather not have significant factors noted?
Well I'll be damned! Who'd a thunk that??? (sarcasm)
I would like all significant factors noted.
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