Whether or not the Supreme Court upholds Arizona’s controversial immigration law, the bill is bad news for business leaders and entrepreneurs.
The architect of Arizona’s controversial anti-immigration law, Republican state senator Russell Pearce, was voted out of office in a historic recall election last November. The conservative immigration hawk represented the deep red legislative district 18 that spans across most of Mesa, AZ.
Pearce had previously served as a sheriff’s deputy under Sheriff Joe Arpaio, where he received a Medal of Valor after being shot by gang members. He also served as the Director of the Arizona Motor Vehicle Devision prior to being elected to the State Senate in 2000. He was serving as the Senate President when he was ousted from office by Republican Jerry Lewis in 2011.
At the heart of the recall election was the controversial bill SB 1070 which, if upheld by the Supreme Court, will require police officers and other law enforcement officials to check immigration documents on all suspected undocumented workers in the state.
Business and community leaders in Mesa disagreed with Pearce’s draconian approach to immigration reform, and quietly helped push the lawmaker out of office, replacing him with Lewis, a conservative more friendly to the business community.
There are good reasons business leaders and other community leaders in Arizona and across the country should be concerned about SB 1070, and whether it will be upheld by the Supreme Court.
Some Arizona law enforcement officials are worried that the law could strain precious department resources, especially since police and other law enforcement agencies have seen budget cuts since the start of the 2008 recession. The law could also lead to “civil unrest or to increased lack of safety because of lack of cooperation,” according to Tucson Police Chief, Roberto Villasenor.
SB 1070 is written broadly and targets anyone law enforcement agents suspect might be an undocumented immigrant.
“Who is the target of 1070? If anyone tells you it is only the drug-and-gun-trafficking criminals, they are mistaken. SB 1070 targets those with brown skin. And in my state, those are my neighbors, my friends,” former Arizona Senator Dennis DeConcini said of the bill at a US Senate hearing on the matter. “Whenever you mix politics and law enforcement, you create a toxic environment, and that is what’s happened.”
Pearce, who also attended the hearing, countered: “”In SB 1070 we prohibit racial profiling, in SB 1070 we say you have to have legitimate contact, in SB1070 we say you have to have reasonable suspicion.”
Law enforcement concerns aside, how would the controversial anti-immigration law impact businesses?
Arizona’s immigration law hurts the labor market, and especially the agricultural industry
Since SB 1070 was voted into law, over 100,000 undocumented workers have left Arizona, either to return to their native countries or to find work in other U.S. states. The agriculture industry in particular has faced hardships as fewer and fewer immigrant workers remain.
“[M]y industry and others need legal access to labor pools that are seasonal, short- and long-term. These pools will not be sourced from this country. This is an essential fact,” said Kevin Rogers of the Arizona Farm Bureau. “You can tell me to pay more, to use convicts, to hire more students and you can tell me technology will solve my problems.”
A 2006 report [pdf] by the American Farm Bureau Federation on the impact of restrictive immigration policies to the agricultural sector found “that if agriculture’s access to migrant labor were cut off, as much as $5-9 billion in annual production of primarily import-sensitive commodities most dependent on migrant labor would be lost in the short term. Over the longer term, this annual loss would increase to $6.5-12 billion as the shock worked its way through the sector. This compares to an annual production average for the entire agricultural sector of $208 billion over the last decade.”
Arizona farmer, Tim Dunn told Bloomberg News that he was already feeling the pinch. “As the economy improves, it will be harder and harder to get the labor we need,” Dunn said. “1070 has stopped the debate as far as what we really need: a way for people to come here to work legally.”
But labor in other sectors would also be impacted negatively by a loss of migrant workers. Workers in retail, manufacturing, construction, the food service sector, and a number of other important industries have also left the state.
SB 1070 and other anti-immigration laws lead to lower consumer spending, and a decrease in business investment.
Immigration opponents often claim that undocumented workers drain resources from local economies. What they forget to mention is that all those workers spend money as well, on housing, food, entertainment, and a number of other consumer goods. When immigrants pack up and leave for greener pastures, they not only take their human capital with them, but also their consumer dollars.
As those consumer dollars drain from the state, landlords, retailers, and other local businesses suffer the consequences.
But workers aren’t the only people impacted by restrictive and punitive regulations. Business owners and investors can face being shut down if they fail to comply with immigration law in Arizona.
B.J. Hernandez, owner of three Havana Cafes in the Phoenix area had planned to open another restaurant until confronted with the new immigration law.
“I would say it’s off for at least a couple of years until I see a light at the end of the tunnel,” said Hernandez. “I feel the environment in Arizona has become so anti-entrepreneurial. If I could leave here, I would.”
Meanwhile Chicago-based restauranteur, Richard Melman, has also recently scrapped plans for a new Scottsdale restaurant.
“I was a little concerned about the law being passed regarding immigration,” Melman 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.”
As consumer dollars and business investments dry up, this also hits state coffers. The loss of sales tax dollars, as well as income tax revenue, has already eaten into the struggling state budget. Meanwhile, undocumented immigrants tend to use fewer state services than US citizens largely due to fears of deportation.
A report from the American Center for Progress estimates that the Arizona immigration law could eventually decrease employment in the state by 17.2%, eliminating 581,000 jobs for both immigrant workers and US citizens, and shrink the state’s economy by over $48 billion, reducing the state tax revenue by 10.1%.
More immediately, the passage of SB 1070 led to a widespread boycott of Arizona and its vital tourism industry. The boycotts led to the cancellation of a number of conventions planned in the state, and the loss of hundreds of millions of dollars, not to mention a tarnishing of Arizona’s reputation, especially among business leaders that AZ gov. Jan Brewer has spent several hundred thousand dollars to repair.
Business Leaders Oppose Draconian Anti-Immigration Laws
Arizona-style immigration laws have been adopted by several other states, including an even more draconian law in Alabama, where crops have rotted in the fields after immigrants fled the state. Understandably, business leaders across the country are worried about the impacts of these laws.
Bill Hammond, president of the Texas Association of Businesses and a member of Texas Employers for Immigration Reform cautioned lawmakers in his state that the “business community opposes Arizona-style legislation and other copycat measures in Texas. We are concerned such laws would increase the deficit, cost Texas jobs and impose an unfunded mandate on local law enforcement while diverting anti-crime resources.”
In Arizona, several other anti-immigration laws have met with less success in the state legislature recently, largely thanks to opposition from the business community.
Glenn Hamer, president and CEO of the Arizona Chamber of Commerce and Industry, said that business leaders in Arizona have come together to oppose these laws. ”I’ve never seen the business community come together in such a strong, united way … saying enough is enough,” Hamer said.
“We made it very clear that those were unnecessary and we would oppose them as vigorously as we opposed the bills that came up last year,” he added.
“What we did not see when (SB 1070) was moving forward was the significant national and international reaction during a really difficult economic time in this state. There was simply no way to expect that level of reaction,” Hamer said. “It’s now clear to the mainstream business community that there are consequences to going it alone on immigration.”
Unsurprisingly, business leaders tend to have a better sense of what works and what doesn’t than elected officials when it comes to regulatory burdens. Onerous regulations that limit the supply of labor and drive workers out tend to harm, not help, the economy. The ripple effects of these sort of regulations have impacts on every sector of the economy, from food service to construction.
“Arizona’s immigration law burdens businesses with regulation and penalizes workers,” writes the Cato Institute’s Immigration Policy Analyst, Alex Nowrasteh. ”It has driven tens of thousands of laborers, consumers and entrepreneurs from the state, turning its bad economy even worse.”
As Arizona’s economy has struggled to regain its footing, it’s worth taking a quick look at the Texas “miracle.”
While much of the country shed jobs after the recession, Texas managed to add a startling number of new workers. This was as much about the Texas government’s willingness to do nothing as it was about any specific policy. From June 2009 to June 2011 the state added 262,000 jobs. That’s about half the country’s 524,000 payroll gains during the same period, according to the Bureau of Labor Statistics.
“If you’re looking for national policy implications, it seems to me to be that we should embrace more immigrants,” writes Matt Yglesias. “After all, where would Texas be today without the past twenty years of in-migration from other parts of the country? The state has prospered mightily from being more welcoming than most places (via its pro-construction regulatory climate) in welcoming new residents.”
The economic fallacy that under-girds anti-immigration sentiment is that of a fixed economic pie.
In this model, the pie is only so large and more workers simply result in more mouths to feed. The limited pieces of pie mean that for every immigrant worker entering an economy, one local worker is displaced. The implications of this fallacy run deep: after all, if the pie is fixed, shouldn’t we be as obsessed with population control as we are with immigration policy? Wouldn’t each baby born in the United States represent a threat to someone else’s job down the line?
Yet, as our population has grown rapidly over the years, the unemployment rate hasn’t grown alongside it, despite the fact that Americans tend to work longer than ever before. This is because the economy is not a fixed pie. The economy grows as population grows, so long as government policy doesn’t restrict that growth. Every new worker is also a new consumer, and possibly a new innovator or entrepreneur as well. Unnecessarily limiting immigration hinders not only the supply of low-skilled workers, but the economic potential of any given community by draining it of all types of human resources.
A recent paper [pdf] in The Journal of Economic Perspectives found that removing restrictions to global movement of labor could boost world GDP anywhere from 50 to 150 percent. Removing such barriers would grow global prosperity more than any further expansion of free trade. But even simply relaxing current immigration restrictions could have a hugely positive impact to the domestic economy.
The fact of the matter is that as population grows, so does the economic pie. Bad government policy, on the other hand, can create limits on who can participate in economic prosperity, either by severely limiting immigration, or through population control mechanisms such as China’s ruthless one-child policy.
Everybody Agrees: The System Is Broken
Undocumented immigration is a problem for a number of reasons. Our system is an ad hoc nightmare that relies on precisely the illegality of its immigrants in order for it to work. Comprehensive immigration reform would make it easier, not more difficult, to emigrate to the United States, for both low-skilled and high-skilled workers. Immigration reform that made working in the country legal and accessible would be at once more effective and more easily carried out than attempts to deport millions of people.
As it stands, the notion that we can deport all the undocumented workers in this country is a brash fiction. Meanwhile, expending precious law enforcement resources and community trust by turning Arizona (and other state) law enforcement agents into de facto border patrol guards is an expensive and inefficient way to approach the situation, and could leave other more serious crimes untended.
With as many as 360,000 Latino voters projected to vote in this year’s national, state, and local elections, Arizona lawmakers like AZ gov. Jan Brewer – and officials around the country – are going to need to start paying attention to the concerns of workers and business leaders across the country.
“Part of the problem is people say, ‘Why don’t these people who work in hotels or work as landscapers come here legally?,’” said Todd Landfried of the Arizona Employers for Immigration Reform. “The reality is there’s no visa for hotel workers. There’s no visa for landscapers.”
Careful, well thought-out immigration reform is badly needed in order to open up more labor options and less restrictive business regulations. Overly broad laws like Arizona’s SB 1070 may be upheld by the Supreme Court, but that doesn’t mean they’ll help rebuild the fragile domestic economy, especially in hard-hit states like Arizona.
As Cato’s Alex Nowrasteh, points out, “Whether or not Arizona’s immigration law is constitutional, it is bad economic policy, and the last thing an economy struggling to create jobs needs.”