Immigration Rules: An Economic Disaster?

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"The bottom line is that this punishes employers for the lack of action by our legislature," says Mark Gould, president of Gould Construction, a heavy construction and highway contractor based in Glenwood Springs, Colo. "One month ago, Bush said he was for a guest worker program, and now he says, 'Go and fire them all.' The dots aren't connecting for me." Gould says his workforce of 125 are legal immigrants, but argues that businesses need more workers to have a legal path to employment in the U.S. to solve a labor shortage. His firm has 10 open positions he cannot fill.

The agricultural sector, which depends heavily on migrant labor, may be the hardest hit. "It's going to be crazy," says Eli Kantor, a Beverly Hills-based immigration attorney: "There will be major disruptions to the economy of Southern California, [which is] heavily dependent on immigrant labor. There will be crops rotting in the fields." Kantor says he expects some of his clients to lay staff off, while he expects others will "take their chances."

Degrees of Impact

Others warn of unintended consequences including job losses for immigrants and native-born Americans alike. "The consequences for the economy will ripple out far beyond the individual immigrants who lose or change their jobs," says Douglas Rivlin, a spokesman for the National Immigration Forum, a pro-immigrant advocacy organization in Washington. "Businesses may close or move off-shore because of the loss of workers and the costs of compliance while downstream processing, shipping, and retailing businesses will also feel the impact. This will hurt many native-born workers who depend on these jobs—all so we can appear to be 'getting tough.'"

Some companies say the stepped-up rules will not impact their businesses because they are in compliance with the law. "We already take action on no-match letters from the Social Security Administration," said Libby Lawson, spokesperson for Tyson Foods (TSN) in an e-mail statement. "For years, it's been our practice to actively respond when the government notifies us of a problem with a worker's Social Security number."

Labor unions, which in previous decades sought to restrict immigration, are now speaking out in support of undocumented workers, who are among their members. "This rule change is the wrong solution to the problem," says Eliseo Medina, executive vice-president of the 1.4 million-member Service Employees International Union (SEIU). "It's a knee-jerk reaction to the failure of immigration reform in the Senate. It will cause a whole lot of misery for workers, and huge problems for the economy."

An Informal Economy?

Medina warns that apart from causing hardship for workers and severe labor shortages in some industries, the new rules could have the unintended consequence of expanding the underground economy. "It's going to create a cat-and-mouse game," says Medina. "Workers will be forced into an informal economy where employers pay cash and operate entirely off the books. This is dangerous for immigrants, and will only pull down wages and benefits for American workers. Bottom-feeding employers are going to have a field day with this."

Medina says fear is spreading throughout the immigrant community, and that the SEIU is developing a program to inform workers of their legal rights. The SEIU is also in discussions with employers, cooperating at times to voice opposition to the new rules.

In the meantime, many employer and immigrant advocates say they don't expect positive steps in immigration reform until Congress manages to pass legislation. "This thing will get worse until we figure out how to reform immigration laws," says Medina. "I'm afraid we're entering into a very difficult period."

Herbst is a reporter for BusinessWeek.com in New York.