Topic: Trade and Immigration

Measuring the Cost of E-Verify Red Tape

A recent story in the Arizona Republic describes the rising practice of using “registered agents” to take care of the paperwork associated with the E-Verify system, which is mandatory for employers in Arizona. Registered agents know how to navigate this system, which requires employers to submit information about their new hires to the federal government for an immigration-status background check. Registered agents are there to step in and reap the rewards when employers throw up their hands.

The story reports that registered agents charge from $7.50 to $10.00 per new hire. There are about 50,000,000 new hires per year in the country (according to Labor Department statistics), and let’s assume that average employer is a little more efficient than those who use a registered agent - so make it $5.00 per new hire. That’s $250,000,000 per year, just on basic administration of the E-Verify system.

There are plenty of other costs to electronic employment elgibility verification, which I wrote about in my recent paper, “Franz Kafka’s Solution to Illegal Immigration.”

At a recent hearing, Representative Ken Calvert (R-CA) reportedly said, “There are certain interests that simply do not want employment verification.” He was referring to an internecine fight with a human resources group. But I found in my paper that “successful internal enforcement of federal immigration law requires an overweening, unworkable, and unacceptable identity system.”

Freedom-loving Americans do not want employment verification. They think it’s doubly or triply foolish to spend taxpayer dollars and burn employers’ time on policies that reduce our economic growth.

No Way to Treat the Customers

Suppose you work for a company experiencing phenomenal revenue growth. Most of that growth is attributable to rapidly increasing sales to new customers with potentially limitless demand for your products.

Then the CEO unveils next year’s strategic plan, which includes actions likely to offend and financially injure those new customers, causing them to take their business elsewhere and jeopardizing your company’s future.

If you work in almost any goods-producing industry in Indiana or North Carolina, the above is not hypothetical. It is precisely what you confront if either Senator Clinton or Senator Obama becomes the next president.

You see, both candidates profess deep skepticism about international trade. Both plan to halt new trade agreements and to force our partners to renegotiate existing deals. Both support provocative, unilateral actions that would ultimately hurt American producers, consumers, and investors. And both insinuate that our trade partners are untrustworthy adversaries.

But Indianans and North Carolinians should recognize those trade partners as something different – like their fastest-growing customers.

Indiana’s producers shipped $26 billion worth of goods to foreign customers in 2007, which was 14 percent more than the year before and 80 percent more than in 2001. Since 2001, the state’s exports have grown at a rate one-third faster than U.S. exports overall.

North Carolina’s producers shipped $23 billion worth of goods to foreign customers in 2007, which was 10 percent more than the year before and 59 percent more than five years ago.

In 2007, exports accounted for 20 percent of U.S. manufacturers’ total sales revenues -— the highest percentage in modern history. And nowhere in America is manufacturing more important to the economy than it is in Indiana, where the sector accounts for over 30 percent of the state’s gross domestic product. Manufacturing accounts for 22 percent of North Carolina’s economy, ranking it fifth in that measure.

In China, Canada, and Mexico – the primary villains in the candidates’ antitrade narratives – Indiana’s and North Carolina’s producers are building relationships that are yielding extraordinary returns. Exports from Indiana to China increased by a whopping 36 percent between 2006 and 2007 (twice the rate of total U.S. export growth to China) and nearly quadruple Indiana’s exports to China in 2001. Indiana’s exports to our NAFTA partners (Canada and Mexico) grew 9 percent from 2006 and 67 percent from 2001, eclipsing overall U.S. export growth to NAFTA in both periods.

Exports from North Carolina to China increased a spectacular 32 percent between 2006 and 2007 (nearly twice the rate of total U.S. export growth to China), and its exports to NAFTA customers grew 46 percent to $7.4 billion over the past five years.

This export growth is not concentrated is one or two industries either. Out of 32 broad industry groupings, 28 in Indiana experienced export growth between 2006 and 2007 and 30 experienced growth between 2001 and 2007. Of the 28 industries showing export growth between 2006 and 2007, 23 experienced double- or triple-digit percentage growth.

In North Carolina, 25 of 32 industries experienced export growth between 2002 and 2007 and the growth rates were at least double-digit for each industry. Over the past year, 23 industries in North Carolina experienced double-digit export growth rates.

From the largest goods-producing industries to the smallest, in Indiana, North Carolina, and, indeed, throughout the country, strong export growth is evident. A study just published by the U.S.-China Business Council found that 406 of 435 congressional districts experienced triple-digit export growth to China between 2000 and 2007. Those figures and other facts from the study were highlighted in a Wall Street Journal editorial today.

Blaming trade for all that ails is a time-honored political tradition. Acting on that impulse by imposing trade barriers or otherwise retreating from the global economy is never the proper course, but it would be particularly foolish in the current environment, where industry after industry is experiencing and benefiting from an export boom.

That boom couldn’t be happening at a better time. In the past, when the U.S. economy slowed, the world economy slowed along with it. But with the recent awakening of demand in long-slumbering developing economies, growth remains strong in many parts of the world. The U.S. economic slow down might therefore be short-lived, as export growth keeps the economy moving ahead. That is unless policymakers do something to risk U.S. access to foreign markets.

Treating the customers with disdain and hostility just might be the plan that kills the golden goose.

Ag Committee Chair Demands Higher Food Prices

Not content with a protected near monopoly of the domestic market, American sugar producers are demanding that Congress make their pot of subsidies and protection even sweeter.

Chairman of the House Agriculture Committee, Rep. Colin Peterson (D-Minn.), is pushing language in the latest proposed farm bill that would raise domestic price supports for sugar and mandate that sugar imports be used for ethanol production.

His proposals would virtually lock in an 85 percent share of the U.S. market for domestic sugar beet and cane growers, even though a number of foreign countries can grow sugar more cheaply than most American growers. And by the way, did I mention that Rep. Peterson’s district is among the nation’s top producers of sugar beets?

The Bush administration, to its credit, opposes Peterson’s changes in the farm bill. The sugar industry, of course, loves the idea. A spokesman for the pro-protection American Sugar Alliance told this morning’s Wall Street Journal, “We have an administration that seems more interested in supporting foreign producers, than producers right here in America.”

Notice the sugar industry doesn’t mention American consumers. U.S. agricultural policies should not be about favoring “our” producers over “theirs,” but about advancing such national interests as freedom, prosperity, and a more peaceful world. As we’ve explained in detail at the Center for Trade Policy Studies, the U.S. sugar program favors American sugar producers primarily at the expense of the rest of America. American families pay higher prices at the store, while U.S. producers that use sugar as an input — bakeries, food processors, restaurants, candy makers, etc. — incur higher costs because of our sugar program.

As we read daily in the newspaper about soaring food prices, this Congress is the verge of passing a farm bill designed explicitly to raise domestic food prices.

AZ-Verify

Arizona’s law requiring employers to use the federal government’s “E-Verify” system to check workers’ immigration status has employers there “confused by the law’s requirements and ‘terrified’ at the prospect of losing their business licenses if they run afoul of its provisions,” according to a local chamber of commerce official.

My recent paper on electronic employment verification calls it “Franz Kafka’s solution to illegal immigration.”

Planet Napolitano

Writing in The Wall Street Journal, Arizona Gov. Janet Napolitano (D) recently complained that the Bush administration is abandoning federal spending commitments, “cost-shifting to the states,” and creating budget deficits in states like Arizona.

In companion letters to the editor of today’s The Wall Street Journal, the Goldwater Institute’s Darcy Olsen and I inquire as to the color of the sky on planet Napolitano.

Olsen writes, in part:

Like most of the southwest, Arizona has been rolling in cash thanks to historic economic expansion. Three of the past five years saw double-digit percentage budget growth. But instead of reducing the tax burden or saving for a rainy day, state government ballooned 40% in real terms. Arizona now finds its per capita state spending on a par with Massachusetts.

Only 21 states went into the red this year, and Arizona led the way with the largest budget deficit of any state on a per-capita basis.

States can unilaterally opt out of some federal programs, like No Child Left Behind. Most governors can also reduce agency spending through executive action. Arizona did none of these things.

Meanwhile, I tackle Napolitano’s argument that restraining federal Medicaid and SCHIP spending amounts to “cost-shifting”:

Medicaid and SCHIP allow Arizona politicians to subsidize Arizona residents (and Arizona health-care providers), while shifting most of the cost to taxpayers in other states.

Gov. Napolitano opposes the administration’s policy not because it would increase cost-shifting, but because it would reduce her ability to shift those costs to other states.

Medicaid and SCHIP: socialism for state politicians.

Shiny, Happy SSA Employees

I recently had the opportunity to conduct a pair of briefings for congressional staff regarding electronic employment eligibility verification. A pair of bills are vying for the attention of Congress these days. I suggested in my recent paper, “Electronic Employment Eligibility Verification: Franz Kafka’s Solution to Illegal Immigration,” that Congress should ignore both. Indeed, it should eliminate “internal enforcement” of immigration law entirely.

One of my co-briefers provided staffers with some interesting information pertaining to the idea of building a regulatory contraption for automatic nationwide verification of workers’ identity and immigration status. He was a representative of SSA workers from the American Federation of Government Employees, National Council of SSA Field Operations Locals.

The programs slated to go national under these proposals would compare data about new workers (and in some cases, existing workers) with databases at the Social Security Administration and the Department of Homeland Security. When the data didn’t match, workers would receive what is called a “tentative nonconformation.” With the 4.1% error rate in SSA files (as found by its Inspector General), that’s a lot of tentative nonconfirmations going even to law-abiding American citizens. A higher percentage of the time, naturalized citizens would get them, too, as government data about them is even more error-prone. Bad government data is just one source of error.

Anyway, when a tentative nonconfirmation is issued, employers are supposed to communicate this to the employee (not all do) and the worker is supposed to report to a Social Security Administration office or the Department of Homeland Security to clear the problem up. This is where the interesting new information comes in.

What would the process be like? Well, try calling your local SSA field office to find out. The SSA worker rep reported that 50% of those calls aren’t answered because field offices are too busy. Calls to the SSA’s national 800-number don’t go through 25% of the time.

It’s not just a phone problem. The agency currently has a backlog of 752,000 on disability rulings. That’s three quarters of a million people who aren’t getting an answer from SSA. It takes 530 days – a little under a year and a half – to get a disability ruling out of SSA.

In my paper, I wrote about the experience American workers would get at the Social Security offices when they went to clear up their tentative nonconfirmations:

Disputes of tentative nonconfirmations would not happen in lushly carpeted offices with marble columns, hot coffee, and friendly, attentive staff. The experience of American workers when they sought permission to work would be much more like their trips to the nation’s departments of motor vehicles, post offices, and dentists—long lines, unfriendly service, and painful procedures.

The SSA union rep assures me that SSA workers are friendly. Any perception of unfriendliness is due to overwork. Fair enough; I may have been slapdash in my writing about SSA employees. But a national electronic employment eligibility verification system would result in 3.6 million new visits to these folks, overworking them and eroding their courtesy even more. These visits, and administering tentative nonconfirmations at SSA, would cost $1 billion, according to the union rep.

Of course, an SSA employee union rep would happily take the money and add workforce to do whatever Congress wants. My preference is to save the money. Enforcement of our abnormally restrictive immigration law causes us to spend taxpayer money on undermining the productive economy. That shouldn’t make sense to anyone.