"Haven't they already been penalized by paying into Social Security, often under fake SSNs, with money that they will never be able to use?"
Some have paid in as you describe. I would not call that a penalty per se...by going around the system, they have lowered their benefits. The wages they acrue over the time that they are employed...as opposed to the time they would have to wait legally...may make up for it. Also consider the cost benefit associated with defacto free health care while they are here.
But I am convinced that most illegals, particularly those working for construction and other service jobs are paid in cash off the books.
If a company is going to evade the law by hiring illegals, they are NOT going to pay one half of the federally required payroll tax, if they can avoid it.
This is one of my main contentions with guest worker programs which dont address reality as seen by the EMPLOYER.
But if there were no illegals available wouldn't such a company pay other workers off the books as well in order to reduce costs by not having to pay payroll taxes or benefits?