Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
After he introduced the Regulatory Accountability Act, Rep. Lamar Smith summarized the GOP attitude on regulation since the Tea Party movement’s influential rise. “Employers across America face an avalanche of unnecessary federal regulatory costs,” he said. “Government regulation has become a barrier to economic growth and job creation.”
This week, Smith demonstrated that his commitment to fewer regulations does not run deep. House Judiciary Committee Republicans passed Smith’s bill to mandate the use of E-Verify, the employment verification system intended to prevent unauthorized immigrants from working. Smith’s willingness to impose this new burden on American business shows a duplicitous approach to intrusive federal regulation.
Even if ultimately paired with legislation that provides a pathway to citizenship for the current illegal population, Smith’s bill will impose huge costs on the economy, employers, and, in the end, employees. Based on the federal government’s own estimates for a similar mandate for federal contractors in 2008, E-Verify will cost employers $6.9 billion per year, as the Competitive Enterprise Institute estimated in a study this year.
Perversely, half these costs come from forcing employers to hire unauthorized workers and then fire them. Since E-Verify often returns errors to legal workers, the bill allows people initially rejected to appeal. To protect legal workers throughout the appeal, employers must continue to pay all workers, even if they ultimately are shown to be unauthorized.
This appeals process guarantees that since immigrants tend to concentrate in short-term jobs, many will apply for jobs, even knowing that they will be rejected. This fact spells the failure of the system, but it also portends major problems for employers. Businesses will have to recruit, hire, train, and pay these workers for weeks only to terminate them.
Replacing workers, even low-skilled workers, is expensive. It costs employers between $2,640 and $6,042, according to two recent meta-studies by economist Heather Boushey and another by the Sasha Corp., a management consulting firm. At the current rejection rate of illegal hires, E-Verify will reject 650,000 unauthorized workers per year, costing businesses $3.9 billion in turnover costs.
Enforcing the law will cost innocent employers as well. Despite no evidence of wrongdoing, Immigration and Customs Enforcement’s never-ending audit of Chipotle’s employment records under the current I-9 system cost the business more than $1 million in attorney fees on top of the man hours spent cataloguing and shipping 300,000 workers’ records.
But mistakes do happen at every business, and they can be costly. In 2010, for instance, ICE fined Abercrombie & Fitch more than $1 million for paperwork filing mistakes. The Senate bill would double those paperwork fines. As in states such as South Carolina that have E-Verify mandates, employers also would be fined for “missing records of checks,” not for “illegal hires.”
All these costs and the increased risk of fines ultimately mean a tax on hiring. In fact, as University of Pennsylvania economist Douglas Massey noted in 2002 after reviewing the effects of fining employers for illegal hiring, “Some employers lowered the wages of their employees, thus compensating themselves for their added paperwork costs and new perceived risks.”
Not only does this mean lower wages for Americans, it also means, “contrary to what Congress had intended, employers continued to hire undocumented migrants; they simply transferred the costs and risks of doing so to the workers themselves in the form of lower pay,” Massey wrote In other words, E-Verify is a costly non-solution to illegal immigration.
“Smart money is not on legalization as a source of business; it is instead on E-Verify as a major source of business for the bar,” wrote the top immigration lawyer blog last week, reporting that the nation’s 250 largest law firms are searching for new immigration employment attorneys. “Firms seek to add meaningful capability (not just a lawyer or two) in-house to service their clients’ post-[immigration reform] E-Verify needs.”
Rep. Smith was right in 2011: “Faced with huge new regulatory burdens… employers slow down hiring, stop investing and wait for another bill.” While employers wait, attorneys excitedly gather. Is this what conservatives want—reduced opportunities for business and expanded opportunities for lawyers? If not, they need to re-affirm their principles and reject E-Verify.