E-Verify E-Viscerates Labor Market

On Wednesday, September 21, the House Judiciary Committee voted along party lines to send Rep. Lamar Smith’s (R-TX) Legal Workforce Act (H.R. 2885) to the House Floor. Now the rest of the House of Representatives will get a chance to debate this monstrosity.

The Legal Workforce Act, if it becomes law, will mandate universal use of a massive new workplace regulation called E-Verify, an electronic employment verification system designed to weed out undocumented workers. It would require all employers to feed the identity information of every prospective employee into a federal database that verifies the information with the Department of Homeland Security and state DMVs.

If the worker is cleared for employment, as happens 95.3% of the time, then that employment is legal. If the worker is not cleared to work and a tentative nonconfirmation (TNC) is issued, the worker and his employer then have a certain amount of time to contest the decision or identify and correct errors and inconsistencies in the worker’s identification. If the worker is unsuccessful in contesting the government’s decision, he is issued a final nonconfirmation (FNC) which means the worker MUST be fired.

But that is just the surface explanation of how the system works. In actual practice, E-Verify is much more complicated and confusing. Worse, it puts another federal bureaucracy between the employer and employee.

E-Verify places significant burdens on businesses. When chipmaker Intel used E-Verify to screen many of its new hires in 2008, over 12 percent were initially given a TNC. All of the prospective employees were eventually cleared to work, but as Intel put it, “only after significant investment of time and money, lost productivity and, for our affected foreign national staff, many hours of confusion, worry, and upset.”

In Arizona, the 2007 Legal Arizona Workers Act (LAWA) mandated E-Verify for all hires in the state. MCL Enterprises, a Burger King franchise with 24 restaurants in Arizona, reported that over 14 percent of its employees – including 75 percent of foreign workers – were initially issued a TNC by E-Verify. They were finally cleared to work after an appeals process and bureaucratic maneuvering.

The process is even worse for small businesses. Intel and MCL had human resources and legal departments that could handle E-Verify errors at a lower cost than most small businesses that can’t afford to have such departments.

Ken Nagel of Phoenix is just such a small business owner. He co-owns two popular restaurants in Phoenix called Aunt Chilada’s and Rustler’s Roose. He tried to hire his daughter, a natural born American, but she flunked E-Verify. In mid-2010, Mike Castillo, owner of PostalMax of Scottsdale, Arizona, wanted to hire a part-time worker but a technical glitch in E-Verify made the filing difficult. It took a few days for Castillo to figure out how to open the government’s computer file and then solve the problem. After that ordeal, Castillo said, “I don’t think people are going to really embrace E-Verify.”

He is right.

According to some estimates, most Arizona employers weren’t even using E-Verify as of July 2010. From late 2008 to late 2009, 1.3 million people were hired in Arizona but only 732,455 E-Verify checks were made.

State Senator Thayer Verschoor (R-22), a vocal supporter of LAWA, is surprised that so many businesses aren’t complying. He thinks that businesses, not the regulations, are the problem. He argues that the government needs to find better ways to enforce the law and business owners need to be “educated” about it. He went on to say that it’s “risky business” for companies to avoid E-Verify because their livelihood is on the line.

Threats to businesses aside, Sen. Verschoor’s support of E-Verify is quixotic, because it can’t even accomplish its core objective of weeding unauthorized workers out of the labor market. According to a major 2009 audit by research service Westat, 4.1 percent of E-Verify’s initial responses to employment verification queries were inaccurate and the system even failed to catch 54 percent of unauthorized workers.

Worse is E-Verify’s alarmingly high rate of false positives. According to Westat, nearly 1 percent of legal workers are originally given a TNC by E-Verify. The costly and complex bureaucratic appeals to correct mistakes guarantee that many TNCs are just ignored. If applied nationally, the Immigration Policy Center estimates that about 3.6 million Americans would have to visit Social Security Administration offices annually to correct their information.

Even if E-Verify’s error rate is dramatically lowered, as bureaucrats have repeatedly promised in congressional hearings, it will push many workers into the black market. According to a recent report by the non-partisan Public Policy Institute of California, LAWA unintentionally “shifted unauthorized workers into less formal work arrangements.”

Immigration restrictions make the world a substantially poorer place than it otherwise would be. Large black markets, like the ones of undocumented workers, are a signal to governments that their laws are ineffective and do not comport with economic reality.

As the Latin American writer Alvaro Vargas Llosa wrote, “Whenever there is a disconnect between the law and reality, reality finds ways of making the law irrelevant.” That is happening very quickly in immigration. Intrusive regulatory mandates like E-Verify are just expensive regulatory diversions.