Many Companies Fear the Worst from New Immigration Rules

A crackdown aimed at illegal immigrants has firms worried that the sky is falling -- and for some, that may prove to be the case.

By Elizabeth Banks, Intern, The Kiplinger Letters

August 21, 2007

New government regulations will take a big toll on many roofing contractors, restaurants, hotels, farms and other service sector companies that rely on immigrant labor. An already tight market for low-skilled workers will get much tighter as the regulations push illegal immigrants out of jobs, sometimes with dire consequences.

Some firms will go out of business and others will be forced to raise prices as their own labor costs skyrocket, assuming they can get workers at all. Firms that can do so will be more inclined to outsource, but a roofing contractor, a hotel owner or a farmer doesn't have that option. The National Roofing Contractors Association says its members face a shortfall of 70,000 employees over the next five years. The agricultural sector's needs are much bigger, although there's a good chance Congress will come to their aid and provide more guest workers just for harvesting.

The reason for the upheaval: new Homeland Security Department rules aimed at about 8 million illegal immigrant workers and the employers who hire them. Starting sometime in September, the government will send out thousands of so-called no-match letters each week. The letters, sent to employers with 10 or more no-match cases, will identify discrepancies in the names and Social Security numbers filed by employers and those that the government has on file. In the past, the no-match letters were merely advisory, but now they will pack a punch -- a big fine if employers don't act within 90 days to either clear up the problem or fire the employee.

Employers predict chaos. They say no one -- and especially not the government -- is prepared to handle this bureaucratic chore. They point to an 11-year-old pilot program that identifies millions of no-match cases that turn out to be innocent errors -- a typo, a computer glitch or an employee who changed names because of marriage or divorce and never informed the government. Homeland Security officials say they are working to improve the database and that clerical problems can be cleared up in the 90-day period and shouldn't be a major problem.

Employers worry that any immigrant, legal or not, who is questioned about a discrepancy will disappear the next day. And firms that run into difficulty clearing problems may take the easy way out and fire innocent workers whose paperwork wasn't in order, resulting in unfair dismissals and any number of lawsuits.

On the other hand, the government says that only those in the U.S. illegally will lose their jobs, and if they can't get another one, they'll leave the country. At the same time, Bush administration officials say they will keep pushing Congress to pass more comprehensive reform to allow more legal immigrants into the U.S. to fill job vacancies. They acknowledge some worker shortages will occur but insist breaking the law by hiring illegal immigrants isn't an answer.

Firms say displaced workers, both legal and illegal, will just take a series of short-term jobs, find an unscrupulous employer who'll pay them off the books, depriving the government of tax revenue -- or worse, turn to crime to put food on the table. Farm groups warn that there'll be a shortage of homegrown crops, forcing more unsafe imports from places such as China. "Is the American public ready for that?" asks Craig Silvertooth, a cochairman of the Essential Worker Immigration Coalition, which fought for a comprehensive immigration bill.

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