For this special guest post in our 'Inside The Statehouse' series, we present the testimony of Daniel Costa of the Economic Policy Institute, delivered before the Indiana Senate’s Select Committee on Immigration Issues on Wednesday, September 21, 2016. [Text republished from EPI's website with permission.]

Thank you Chairman Delph and other members of the Select Committee on Immigration Issues, for allowing me to testify at this hearing. I work for the Economic Policy Institute, a think tank in Washington D.C., that was founded 30 years ago and is dedicated to analyzing the labor market and advancing policies that ensure broadly shared prosperity for all workers in the United States.

I am myself the son of two immigrants to the United States, each of whom came from a different country, thus I am a direct beneficiary of America’s openness to immigration and immigrants. But beyond how immigration benefits the individuals who immigrate, the United States has also benefitted greatly from immigration—both economically and culturally—and there is no question in my mind that immigration is good for the United States in myriad ways.

Nevertheless, it cannot be said that the American immigration system is functioning properly or ideally, or in a manner that can achieve a more broadly shared prosperity. The immigration system needs major reforms, some of which I’ll talk about today, but I’ll just start off by noting that one basic principle of our immigration system should be that all migrant workers in the U.S. labor market—whether they have been here for one day or ten years, and whether they are a guestworker, a refugee, a naturalized citizen, or in an unauthorized status—should always have access to the same labor and employment law protections that American workers have, and be able to exercise those rights in practice.

With that in mind, the rest of my testimony will focus on unauthorized immigration and the U.S. labor market, as well as the use of temporary foreign worker programs (also commonly referred to as “guestworker” programs) and their impact on the U.S. labor market.

According to the Pew Hispanic Center, an estimated 11 million unauthorized immigrants live in the United States, and those who work make up about 5 percent of the U.S. labor market. The vast majority of unauthorized immigrants are not recent arrivals to the United States. In fact, nearly two-thirds have been in the country for more than 10 years, and one-fifth have been here for two decades.1 This trend is likely to continue, since the unauthorized population has not been growing. In fact, the latest data show it’s slowly shrinking.2

Even though the unauthorized immigrant population makes important contributions to the American economy, it is far from ideal to have 5 percent of the labor market who are not authorized to be employed. Unauthorized immigrant workers are often beyond the reach of either labor or immigration laws; they are often subjected to grave risks, exploitation, and uncertain futures in the United States, and the presence of vulnerable and exploitable workers in the labor market puts downward pressure on the wages and working conditions of all workers. Moreover, unauthorized immigration is also unfair to migrants who sometimes wait years to gain legal entry, and it undermines the rule of law, and strengthens the conviction that the federal government is powerless to solve important national problems.

But how did we get here? I think we have to have an honest discussion about this before we can talk about impacts and solutions.

Many in the public, as well as federal and state legislators, believe that unauthorized immigrants are “law breakers” and solely to blame for coming to the United States in search of a better life without permission. That of course, is one part of the equation, but it ignores and absolves the other responsible parties. Those who have this perspective would be on much firmer ground if the United States had a good set of immigration laws that were fair, transparent, and enforceable. At present, no one on any side of the debate can credibly argue that’s the case.

In fact, major elements of American society abetted the creation of a large population of unauthorized immigrants, including major industries such as agriculture, meat packing, and construction, which came to rely on unauthorized workers. For decades, U.S. employers recruited and illegally hired workers from abroad for low-wage jobs with impunity. And unauthorized immigrants entered the country without inspection at the border in order to take those jobs, or overstayed temporary visas.

The U.S. government also played a major role: Democratic and Republican administrations ignored the problem and failed to adequately enforce existing laws. Congress itself got the ball rolling when it passed an immigration reform law in 1986 that included a paper-based “I-9” employment verification system that is easily susceptible to fraud and difficult to enforce. And the legalization program the 1986 law included wasn’t nearly broad enough; it failed to legalize millions, which left behind the core of today’s unauthorized population.

Employers, unauthorized immigrants, and the government must now share the blame equally, but only the U.S. Congress can fix this for good.

The impact of immigration and unauthorized immigration on the U.S. labor market

With that said, I’d like to turn now to a discussion of the impact of both immigration overall, and unauthorized immigration, on the U.S. labor market.

First, it must be said that overall, when all workers are included in the aggregate, most evidence and research suggests immigration is good for the country, including its effects on the wages of most workers. The most rigorous work on the effect of immigration on wages finds extremely modest effects for native-born workers, including those with low levels of education.

My former EPI colleague, economist Heidi Shierholz published a paper showing immigration’s relative impact on wages from 1994 to 2007 by gender and education for both U.S.-born and foreign-born workers.3 Her research showed that earlier immigrants who have less than a high school degree are the group that is most adversely affected by new immigration. This is because they are often the most substitutable for new immigrants, often living in the same places and possessing similar skills. But for native-born workers, the effects tend to be very small, and on average, modestly positive.4 Even the economists who are the most skeptical of immigration, for example George Borjas at Harvard, have estimated that immigration has reduced the wages of native high school dropouts by somewhere between 2 to 5 percent.5

This is useful for reminding policymakers that native-born workers have little to fear in the aggregate as far as immigration’s labor market impact is concerned.

There is also research that shows that competition with new lower-wage, lesser-skilled immigrants can be a problem for low-wage-earning native-born workers during a recession or a time of high unemployment,6 although that effect generally equalizes over the long term. That suggests a simple policy solution when it comes to low-wage migration: create a mechanism that can increase or decrease immigration flows in response to economic conditions. When the economy is in a recession or a slow-growth period, the levels could be decreased, and when the economy is growing smartly and jobs get harder to fill, it could be increased accordingly. And furthermore, whenever a new migrant worker comes to the United States, employers should first have to prove that there are no American workers available, and be required to pay the migrant no less than the local average wage. That will ensure that employers are not using immigration to supplant American workers and to undercut U.S. wage rates.

I will turn now to now unauthorized immigration, and its impact on lesser-skilled native-born American workers. Unauthorized immigrants contribute to the economy in vital industries and pay billions in taxes, but it’s also true that the 5 percent of the labor force they make up are not fully protected by U.S. labor laws—this of course, is not helpful to American workers. Unauthorized workers are often afraid to complain about unpaid wages and substandard working conditions because employers can retaliate by taking actions that can lead to their deportation. This gives employers extraordinary power to exploit and underpay them. And when the immigrants’ wages are suppressed, so are the wages of U.S. workers competing for similar jobs.

This exploitation is not just theoretical. According to a landmark study and survey of thousands of workers, 37 percent of unauthorized immigrant workers were the victims of minimum wage law violations at the hands of their employers (meaning they were not paid the legally required minimum wage). And an astonishing 84 percent of unauthorized immigrant workers who worked full time were not paid for overtime, that is, they were not paid the legally required time-and-a-half rate for the hours they worked in a week beyond 40 hours.7 While American workers also suffer unacceptably high rates of wage theft, unauthorized workers are much worse off. A study from the U.S. Labor Department also found that non-citizens were 1.6 to 3.1 times more likely to suffer from a minimum wage violation than a U.S. citizen.8

The result is that bargaining power of U.S.-born workers competing in the low-wage labor market is undercut when millions of unauthorized workers cannot safely complain to the Labor Department or sue for unpaid wages.

The impact of unauthorized immigration on budget costs for states and the federal government

Now I’ll discuss the impact of unauthorized immigration on budget costs for states and the federal government. There is a fairly broad consensus that the present value of the long-run net fiscal impact of unauthorized immigration, at all levels of government combined, is small but positive—meaning that immigration reduces overall budget deficits.9 The long-run fiscal impact at the federal level is strongly positive; however, the impact at the state and local levels is negative. There is also a clear understanding that while the negative state and local impacts are largely concentrated in the states and localities that receive most of the new immigrants—the main costs are for education and health care—but the federal impact is shared evenly across the nation.

Unauthorized immigrants are a net positive for public budgets because they contribute more to the system than they take out.10 Unauthorized immigrants generally cannot receive benefits from government programs, except in some cases, such as when unauthorized immigrant children receive public education, and in some states that allow unauthorized immigrants to attend state colleges at in-state tuition rates. Nevertheless, most of these unauthorized immigrants will still pay taxes. The vast majority pay sales taxes in states with sales taxes, and property taxes through properties that they own or rent. Additionally, most unauthorized immigrant workers also pay payroll and income taxes. The Social Security Administration estimates that 75 percent of unauthorized immigrants are actually on formal payrolls, either using fraudulent Social Security numbers or Social Security numbers of the deceased.11Unauthorized immigrants pay into Social Security via automatic payroll deductions, but they can never claim Social Security benefits. In 2005, it was estimated that unauthorized immigrants paid about $7 billion per year in Social Security taxes that they will never be able to reclaim.12

Unauthorized immigrants are also unlikely to receive any income credits available through the tax code, or to receive a tax refund if they overpaid in their regular payroll withholdings. The Tax Policy Center estimates that 78 percent of American households that earned less than $33,000 owed no federal income taxes in 2011.13 Many low-income taxpayers only paid marginal amounts if they did owe. Because of their low income levels, most unauthorized immigrants would likely fall into either of these categories. A significant portion of unauthorized immigrants file taxes using Individual Taxpayer Identification Numbers (ITINs);14 however, many unauthorized immigrants don’t file because they fear deportation if they avail themselves to a government agency.

It is also often falsely claimed that unauthorized immigrants use public support programs like welfare, unemployment insurance, and food stamps. While it is possible that an unauthorized immigrant could benefit from a U.S. citizen or lawful permanent resident who is a family member receiving income support through a federal or state program—unauthorized immigrants themselves by and large are ineligible for such programs because of their immigration status. Even immigrants who are granted lawful permanent residence must usually wait a period of five years before they can collect most federal social benefits.

It is also important to point out that the most reliable and often cited research on the economic and fiscal costs and benefits of immigration was conducted nearly 20 years ago, as part of a study conducted by the National Academies of Science. At this point the information in it is certainly dated but still heavily relied upon. However, later this week the National Academy of Sciences, Engineering and Medicine will publish it’s new, updated report on the same topic, titled The Economic and Fiscal Consequences of Immigration. This report will be the first comprehensive new look the issue since 1997. I am not privy to the reports findings, so I urge the committee to take a fresh look at the evidence after it’s released. I know I will certainly be following it with great interest.

I know that this committee is not tasked with considering federal solutions to unauthorized immigration, so I won’t waste your time with it. I’ll just say one sentence about it, which is that Congress could resolve the issue once and for all, while also helping native-born American workers, by passing legislation that legalizes all unauthorized immigrants and provides them a path to citizenship. That would allow immigrants to assert their rights, and raise standards and wages for everyone.

The solution to unauthorized immigration is certainly not not mass deportation, or the criminalization of unauthorized immigrants, or state and local programs that assist the federal government in identifying unauthorized immigrants and facilitating their removal. Unauthorized immigrant workers aren’t at fault for keeping wages down and conditions deplorable in lower-skilled occupations—they shouldn’t be blamed for that—the fault lies with U.S. employers. Unauthorized immigrants also didn’t craft and implement policies that have led to the United States having the highest share of low-wage jobs in the developed world, at about a quarter of all jobs.15

A much better solution, and one which Indiana could implement, would be to raise the state’s minimum wage. Even the largest estimated effects of low-wage immigrants on the wages of U.S.-born workers are so small that they would be more than eliminated by raising the minimum wage to $10.10 an hour, $12 an hour, or even better, $15 an hour.

Something else that is usually not debated in the context of the immigration discussions, is the fact that the biggest single culprit in the growth of wage inequality has been deunionization.16 Unions are not just good for union members who can collectively bargain for higher wages and benefits, but higher rates of unionization also benefit workers who are not in a union. As a recent EPI report showed,17 for nonunion private-sector male workers, their weekly wages would have been an estimated 5 percent ($52) higher in 2013 if private-sector union density—that is, the share of workers in similar industries and regions who are union members—remained at its 1979 level. For a year-round worker, this translates to an annual wage loss of $2,704. For the 40 million nonunion private-sector men, this loss is equivalent to $2.1 billion fewer dollars in weekly paychecks, which represents an annual wage loss of $109 billion.

For nonunion private-sector men without a bachelor’s degree or more, weekly wages would have been an estimated 8 percent higher, and for those with a high school diploma or less, weekly wages would be an estimated 9 percent ($61) higher. For a year-round worker at this education level, this translates to an annual wage loss of about $3,172.18

That’s a good reminder that the only way to achieve sustained wage growth is if American and immigrant workers are able to organize and build power together through unionizing and collective bargaining. Any measures or legislation that increases the ability of immigrants to join unions and collectively bargain will only help improve wages for immigrant and American workers alike. Any laws that restrict collective bargaining will exacerbate wage inequality for low-wage workers.

Another thing that Indiana and other states can do is increase staff and funding dedicated to wage and hour enforcement. Workers lose billions in wages ever year, yet the federal government is woefully under-resourced to tackle the problem. In fact, in 2012, the amount of wage theft recovered for workers was almost three times greater than all the money stolen in all robberies that year.19 And the total amount that is stolen, including wages that aren’t recovered, is estimated to be as high as $50 billion per year.20

This is hard to combat because the Wage and Hour Division in the U.S. Department of Labor has a herculean task: With only about 1,100 inspectors, they are responsible for protecting over 150 million workers in more than 7 million establishments throughout the country. Every year, the federal government only spends a fraction of what it does for labor enforcement compared to what it spends on immigration enforcement: in 2012 only $1.6 billion was appropriated for all labor enforcement agencies combined, while $18 billion was appropriated for immigration enforcement.21 Anything the state can do to assist in these efforts would greatly help workers recover what they’ve lost.

There are also two innovative laws from California which the legislature could consider. California is the state with the largest population of unauthorized immigrations in the nation, with an estimated 1.85 million unauthorized immigrants working in California, accounting for about a tenth of the workforce. That share of the workforce is particularly vulnerable to exploitation on the basis of their immigration status. As I’ve already noted, it is difficult for unauthorized workers to enforce minimum wage and overtime laws because employers use the threat of deportation to prevent labor organizing and to keep workers from complaining. Employers can also report the undocumented to Immigration and Customs Enforcement, or require them to update or provide documentation for their “I-9” file, or run their name through E-Verify, the government’s electronic employment verification system. This increases the likelihood they’ll be fired and/or deported.

What California did, is pass two laws in late 2013 that would prohibit employers and their agents from using immigration status in retaliation for organizing, demanding their wages be paid, reporting employer violations, cooperating with a government investigation, or testifying against employers who act illegally. Both laws established a $10,000 civil penalty. One makes retaliation a misdemeanor and entitles victims to reinstatement and back pay, and expands the definition of extortion to include threats related to immigration status, thus prohibiting employers from stealing wages using threats of deportation. The other permits suspension or revocation of violators’ business licenses, or the suspension or revocation of the Bar Association license of any attorney who participates in retaliation that has an immigration status component.

One aspect of the immigration system that employers lobby heavily over are the many U.S. temporary foreign worker programs. These are guestworker programs where workers have limited rights and are tied to one employer. But this is problematic because any situation where workers’ individual bargaining power is reduced is going to put downward pressure on their wages, and therefore also on the wages of workers in similar occupations and industries.

That means that for guestworkers, if their employer treats them badly, their only recourse is to leave the country, and many incur a great deal of debt to get to the United States and to acquire their temporary job. Additionally, “prevailing” wage rules in guestworker programs often allow guestworkers’ employers to pay them a lower wage than the market rate. In short, these workers’ lack of bargaining power—their weak position puts downward pressure on the wages and working conditions of native- and foreign-born workers alike in the occupations and in the places where guestworkers are present.

Regardless of employees’ immigration status, employers must abide by the rules set out in the Fair Labor Standards Act (and its implementing regulations), which include the federal minimum wage and overtime pay requirements for most workers in the United States, as well as any applicable state and local wage and hour laws. However, some occupations filled by temporary foreign workers are sometimes exempt from the state or federal minimum wage (for example, if they work for an amusement park that is only open seasonally).

In some guestworker programs, there are rules intended to safeguard the wages of U.S. workers. Three programs in the H visa category require employers to pay a “prevailing” or “adverse effect” wage rate. This is because under U.S. laws and regulations, the wages and working conditions of foreign workers in these programs are prohibited from adversely affecting the wages and working conditions of U.S. workers. Nevertheless, in practice, there is a growing body of research which proves that in many cases, prevailing wage rules result in allowing employers to pay their temporary foreign workers less than the true market rate. I’ll just provide two examples from recent EPI research.

First, H-2B labor certification data published by DOL show that in landscaping, the largest H-2B occupation, employers nationwide saved an average of $2.59 per hour in 2014 by hiring an H-2B worker rather than a U.S. worker earning the average wage for landscaping. The savings are similar for employers in states with large numbers of H-2B landscapers.22 Second, in the H-1B program, thanks to recent reporting by the New York Times and others, we know that profitable companies like Disney, which earned billions in profits last year laid off hundreds of information technology workers and replaced with them with H-1Bs.23 But first, the U.S. employees were required to train the H-1B workers who would soon be sitting at their desks, doing their jobs. Thanks to a review of federal data by Professor Ron Hira, we know that in some cases, the H-1B worker replacements were earning $40,000 less than the comparable American workers.24 This seems like it should be illegal, but as the Labor Department has found, it is not. This can occur for two reasons: First, because employers are permitted to pay their H-1B workers the Level 1, entry-level prevailing wage—which is set at the 17th percentile wage according to U.S. Department of Labor wage survey data—rather than being required to pay no less than the local average wage for each H-1B job. And second, employers are not required to first recruit local American workers before hiring an H-1B worker, and are even permitted to replace their workforce with H-1B workers.25

There are also a number of other guestworker programs such as the L, E, O, TN, and J visas, and the OPT program for foreign students, that have no wage rules whatsoever, or requirements that employers first seek available or unemployed American workers before hiring a temporary foreign worker. There is almost no public data available from the government that could allow us analyze the wage impact of these guestworker programs, but the media has reported cases of L-1 workers being paid less than $2 an hour to do skilled work in the computer occupations,26 and the recent scandal at a Tesla auto plant in California—where workers who should have been earning $55 an hour were only earning $5 an hour while working on business visitor and tourist visas—shows that employers know how to game the system to keep guestworkers on almost any visa indentured and underpaid.27

One other relevant data point worth mentioning was published in an EPI paper last year, showing that low-wage temporary foreign workers from Mexico in the H-2A and H-2B programs earn, on average, approximately the same wages as similar unauthorized immigrant workers.28 This shows that there is no wage premium for “legal” guestworkers as compared to unauthorized immigrant workers. Guestworkers are paid just as little because they are just as powerless as unauthorized immigrants. And in some ways, as the paper describes, unauthorized workers are actually in a better situation than guestworkers.

Relatively few guestworkers are hired in Indiana every year. The most recent federal data show that in 2015 there were about 1,100 H-2B certifications for nonagricultural jobs in Indiana, and 1,250 certifications for agricultural jobs in the H-2A program.29 In the H-1B program, in 2013 just over 1,500 H-1Bs were granted to petitioners from Indiana (which includes approved petitions for new employment and visa extensions), with the top petitioner being Purdue University, and the top occupation overall being in “College & University Education.”30

It appears that so far, Indiana employers have by and large, resisted using these indentured worker programs that tie workers to one employer and allow them to be underpaid according to local standards.

I’ll conclude there. Thank you again to the Committee for inviting me to this hearing, and I welcome any questions you may have.