Immigration Reform’s Economic Impact

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The immigration reform bill being introduced in congress could pump millions of dollars into Arizona’s economy. Arizona State University’s Dennis Hoffman will tell us more.

Ted Simons: The U.S. senate's immigration reform bill includes billions of dollars marked for border security, along with expected spending on everything from drones, to prosecutors, to additional customs agents. Much of that federal money could find its way into Arizona. Here to talk about the overall economic impact of immigration reform on the state is ASU economist Dennis Hoffman. Good to see you again. Thanks for joining us.

Dennis Hoffman: Great to be here.

Ted Simons: There's direct spending, there's indirect, a lot of talk here, but in general the impact of this proposal on the Arizona economy.

Dennis Hoffman: Well, just for basic perspective, and you're absolutely right, you can go out on the web and find numbers all over the place. And there's -- You really have to look at that material very carefully and figure out what is academically credible, and viable. But look. This is more freedom in the labor market. On a very simple level, if you allow more flexibility in the labor markets, in the hiring and firing process and the job search process, in the human capital investment process, this is a win for the economy. You're effectively adding resources to the economy that has to end up as positives for the entire nation, positives for the state.

Ted Simons: Let's go -- I want to get to Mexico and cross border traffic and trade in a second, but back to what you were talking about, does the bill address Arizona labor needs?

Dennis Hoffman: It does. You know, when I think about Arizona labor needs, I think in the way that this particular bill affects them, I think about the lower skill jobs, the jobs in agriculture that we hear about a lot, the jobs in construction, in contracting, I think if you look at our state historically, in the population growth serving sectors, we have leveraged undocumented labor, and again, the numbers are tough to get definitively, but we have clearly leveraged undocumented labor over the years, and we can fill niches in that way with a viable enforceable guest worker piece of this, and also allowing some of the folks that currently reside in the U.S. access to the labor markets. But then we also, if you want to flip this to the high skill jobs, and we did an extensive study a couple years ago for the Arizona technology council, and investigated the needs of our technology businesses. And they're crying for skilled labor. And I see this every day at the Universities. We have hundreds of folks enrolled especially in our graduate programs, that come to us from foreign countries. They fill a lot of these graduate classes, and I've heard a lot of politicians say over the years that we need to, you know, staple a green card to their diplomas. To some degree this legislation is a move in that direction.

Ted Simons: It sounds like the H1BV-- The cap has been raised, and I think that would be positive toward Arizona. But also they would -- I think the legislation calls for these particular workers, that they would have to be paid higher wages. Does that make sense? Again, how does that affect the state?

Dennis Hoffman: You know, from an economic perspective -- I understand there's politics lurking everywhere here. From an economic perspective, I think we're better off allowing the employee and the employer to figure out wages on their own. I'd say the same thing about minimum wage or, you know, wages for this group of folks. The more you can move in that particular direction, I think the better off the economy is going to be. And as far --

Ted Simons: as far as the lower skilled worker, there's an agricultural Visa program for farm workers, again, in terms of Arizona's economy, how does that -- How do the multipliers work? You have more folks employed, more folks employed, not hiding out, spending money. What kind of affects are we seeing?

Dennis Hoffman: So if you look at -- I think one of the best studies I saw, endorsed in the CATO journal, came out after think tank out of UCLA, so it was highly -- It was vetted in the referee process, extensive modeling done, it was done for the entire country, but then the author also focused on California and on Arizona. It looked at three possible outcomes. Three possible scenarios. One was the full immigration reform effectively taking the 11 million folks that are in the country now and unleashing them on the labor market. A second variation was to just focus on this guest worker program for low-skilled people to try to address the agricultural issue. And the third just for simulation purposes, deporting the 11 million, which of course I'm not in favor of, but some folks want to talk about. And the economic consequences to the full reform are really very positive. Excuse me. On the order of 1% GDP growth for the U.S., that translates into a $2 billion increment for the state of Arizona. It's really very, very positive. Now, this is one of the studies that I saw that has the biggest impact. And it was based upon, by the way, the data that he got from 1986 . Which I think is very informative. The last major immigration reform that took place under the Reagan administration, by the way, in 1986 . And you use some of the positive measurable positive impacts on that, and it's really kind of fascinating when you think about that. You think about Arizona in the late 80's early 90's, the economy was not great in Arizona during that particular period. But my thought of course went, wow, I wonder what it would have been like had we not liberalized immigration at that particular point? Over the last five years, Ted, we've had exactly the opposite. As of December in 2007, we imposed the most aggressive employer sanctions bill, law in the entire nation. And we all know what's happened to our labor markets since 2007.

Ted Simons: with that in mind, this bill looks at enhancing e-verify around the country, Arizona has experience e-verify. First, is Arizona ready for this, and has e-verify really worked -- How many employers are being marched in front of magistrates? I don't see too many.

Dennis Hoffman: No, they're not. Here's the challenge. Even if you look back to 86', and people talk about a lot of the successes in the positives that follow the 86' act, the challenge of course is, it didn't stem the tide for another complete generation of undocumented In-migration. So there is certainly interest in terms of fence security, in terms of e-verify on the part of most Americans I think to try to do something about, hey, let's make this process legal, let's fix this poorest border kind of situation. So I think e-verify has to be a piece of that. I know people are mixed on it. It is onerous for some businesses. But in today's technology, my goodness, can't we develop a system where we can authenticate individuals that apply for positions? We have to go through a lot of red tape when we hire folks at ASU as well.

Ted Simons: Sound like a biometric green card is going to be required.

Dennis Hoffman: Can I sign up? If it gets me through the airport security, I will sign up first.

Ted Simons: We mentioned in the intro the fact that border security, drones, fence surveillance, border patrol, judges, prosecutors, defenders, translators, all of these folks are going to be needed are and they're going to be needed to be paid if border security is as strong as this bill proposes.

Dennis Hoffman: Indeed. And there's going to be a lot of jobs here. Some of the folks with some of the business organizations have noted the number much jobs that might be generated by this stepped-up effort in security. I'm amused by all of this when I think about Barry Goldwater's vision for the border today. Have you heard this quote?

Ted Simons: No, I haven't.

Dennis Hoffman: I think it's timely. So back in 1962, when asked to forecast what Arizona of 2012 would look like, so at the 50th anniversary, what will we look at the 100th anniversary, Barry Goldwater was asked this question, what would Arizona look like? And he went down a list of things. And here's one of them. He said, quote -- Our ties with Mexico will be much more firmly established in 2012, because sometime within the next 50 years the Mexican border will become as the Canadian border. A free one with formalities and red tape of ingress and egress cut to a minimum. So that residents of both countries can travel back and forth across the line as if it were not there.

Ted Simons: Well, that seems like a bit of a stretch from the U.S. senate's bill proposal. It's an interesting quote, though. But let's go in that direction. Let's talk about, again, cross-border trade, cross-border traffic, just getting back and forth, maybe not quite as easily as the senator thought there, but what changes --

Dennis Hoffman: we're very different from the vision of interconnected relationship with Mexico. I think we need to work more in that direction to try to improve that. There's lots of costs that will be born now to put all of this border security in place. To incur all of the wait times and security checking that this kind of border security will require. Now, is it necessary? I think it's unfortunately I think it's a necessary political outcome today. Folks do tend to want border security. But we have to figure out ways in my opinion, to immigrate -- Integrate these economies, the economies of Mexico, the economy of Mexico and the economy of the U.S. in a much more sophisticated way than we currently have.

Ted Simons: Do you see that direct business with Mexico increasing or just simply changing, if something like this were to go through?

Dennis Hoffman: Well, I think -- I think there's a lot of momentum for investments in infrastructure, for improved and warming relations on some fronts, especially with respect to certain business sectors in terms of the development, let's say of aerospace. Let's say of doing a better job and I've heard this argument from a number of fronts in Arizona, connecting manufacturing facilities in Mexico with research and development facilities perhaps north of the border and aligning that -- Leveraging, say, less expensive labor and manufacturing with the research and talent that could take place up here.

Ted Simons: De facto outsourcing, in other words.

Dennis Hoffman: Indeed, and doing it in this hemisphere fear as opposed to shipping the jobs to Asia.

Ted Simons: I think you mentioned something along the lines that this is a matter of productivity and not politics. This particular bill. Explain, please.

Dennis Hoffman: Well, the productivity issue is what I think about when I think about immigration reform. Again, it's kind of my -- When you unfetter labor markets, and you hear this from a lot of fronts, you've heard this historically from Senator Flake, way back in his days with the Goldwater institute. When he promulgated open border, open labor types of policies. As many -- This very libertarian, very consistent with Goldwater's original vision, as I've noted here, and with a libertarian kind of concept. You can maximize productivity if you maximize resources if you unfetter markets. And that's very clear.

Ted Simons: OK. We have about seconds left. Talk about what could happen if this thing goes through. What happens to Arizona's economy if nothing changes?

Dennis Hoffman: Well, again, economists debate this. A number of economists will point out that many of these 11 million folks are already employed, they're actually paying taxes, they're underemployed, they're probably not earning the wages they would if they were, quote, legal. They're paying taxes, but they could be doing more. So we are sub optimizing in our current situation, but certainly it isn't disaster, the status quo is not disaster.

Ted Simons: Just could be a little better.

Dennis Hoffman: We could be much better.

Ted Simons: It's good to have you here of the thanks for joining us.

Dennis Hoffman:ASU;

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