The Employer Who Hires Off the Books Is Breaking the Law, Not Helping

Here is a sentence you will hear at some point in any immigration argument: "Those people are just looking for work." It is true. Now here is the question nobody follows it with: who is giving them the work?

Every unlawful job has two ends. At one end stands a worker, usually poor, usually hardworking, usually in a position where he has few choices. At the other end stands an employer, with a payroll, a business license, a lawyer or an accountant, and a choice. Our public debate spends nearly all its time on the first person and almost none on the second. I'd like to reverse that. (Imagine a murder investigation where the detectives interviewed only the victim's coat. That is roughly the state of the immigration conversation on the question of who hires.) And I'd like to do it with a sympathetic eye toward the worker, because the argument I am about to make is, among other things, the best argument for protecting him.

The claim

Illegal hiring is the magnet behind illegal immigration, the employer who does it is the one making the decision to break the law, and enforcement should therefore be aimed at employers first.

I'll define the terms, state the other side's best case, and argue in numbered steps.

An off-the-books worker is someone paid in cash or through a scheme that avoids the payroll system, so that the employer does not withhold income or payroll taxes, does not carry workers' compensation, and does not verify the worker's eligibility to work. Unauthorized employment is employment of a person who is not legally permitted to work in the United States, whether or not it is on the books. Both are illegal for the employer, and they overlap, though they are not the same thing. A fake Social Security number on a real payroll can be as unlawful as a cash envelope.

What the law says

Congress dealt with this in the Immigration Reform and Control Act of 1986, signed by President Reagan on November 6 of that year. The law did two famous things. It gave legal status to a large number of people, commonly put at roughly 2.7 million, counting both long-term unlawful residents who had been here since before 1982 and special agricultural workers. And, in exchange, it created for the first time a federal prohibition on hiring workers who are not authorized to work.

That prohibition is now codified at Title 8, Section 1324a of the United States Code. In broad terms it does three things.

1. It makes it unlawful to hire, recruit or refer for a fee a person knowing that he is not authorized to work.
2. It makes it unlawful to continue to employ a worker once you know he is unauthorized.
3. It requires every employer to verify the identity and work eligibility of every new employee, which is the job of the Employment Eligibility Verification form, the Form I-9, and to keep the form on file.

The statute also provides penalties. They include civil fines for violations and, where an employer engages in a "pattern or practice" of knowing violations, criminal penalties, including imprisonment. I will leave the dollar amounts to the statute and to the agency, because the figures are adjusted for inflation and anyone relying on them should check the current schedule.

Here is the structural point. The law makes the employer the enforcement point. Think about why. A worker can cross a border at night. An employer, by contrast, is a business with a fixed address, a tax identification number and a payroll that must be explained to the state and the IRS. There are some millions of employers, and every one of them is visible to the government in a way that an individual in the shadows is not. If you want to reduce unlawful employment, the employer is the place to do it. That was Congress's idea in 1986.

The strongest case for the other side

I owe you the best argument against my position, stated fairly. It has several parts.

One: employers are not immigration officers. The documents an applicant presents can be forged, and employers cannot be expected to tell a good forgery from a good card. The statute itself says that an employer who examines a document that "reasonably appears on its face to be genuine" has done what the law asks. Two: the system punishes honest businesses for the dishonesty of document forgers, and the paperwork is a trap in which a good-faith mistake can become a violation. Three: many industries, such as agriculture, construction and home care, depend on labor that is in short supply, and enforcement against employers, however fair in principle, would hit those businesses first and hardest. Four: the workers themselves are the ones who suffer when an employer is raided.

These points have force. The "reasonably appears on its face" standard is real, and it is the single biggest weakness of the 1986 design. Honest employers can be fooled, and nobody should want to prosecute the owner who was deceived. And the labor-supply argument deserves a real answer, not a dismissal. For the fuller story of how the forgery problem arose, see The 1986 Law's Real Failure Was the Fake Document Industry It Created, and for the debate among conservatives about the electronic fix, see The Conservative Split Over Mandatory E-Verify, Argued From Both Sides.

The answer, in numbered points

1. The employer is the one who decides. A person does not wander into a job. An employer posts an opening, takes an application and makes an offer. When the employer knows that the worker is unauthorized, or arranges things so that he does not have to know, he has made a deliberate commercial choice to break a law for the sake of a lower labor cost. The word the coverage prefers is "oversight," a word that sounds like a clipboard left on a truck. That is not a victimless oversight. It is the central act that makes the illegal arrangement possible.
2. The jobs are the magnet. People cross borders and overstay visas because of opportunities, and the single biggest opportunity is a job. Reduce the number of employers willing to hire unlawfully, and you reduce the pull. This is not a theory of cruelty. It is a theory of incentives, and it explains why one policy that is both humane and effective is to close the door at the workplace rather than chasing individuals through the countryside.
3. The penalties have historically fallen on the wrong people. Congress wrote sanctions for employers in 1986, but enforcement over the following decades focused heavily on workers: the arrest, the detention, the removal. The employer who built a business model on unauthorized labor frequently faced a modest fine or none, while the worker faced the loss of his livelihood and his place in the country. If the law's main burden falls on the least powerful party, something has gone wrong with its design or its enforcement. That is the strongest argument that the system needs correcting, and it is an argument conservatives should make loudly, because it is an argument about equal justice.
4. Cheap illegal labor is not cheap. It looks cheap on the employer's ledger, because he avoids payroll taxes, insurance premiums and sometimes overtime. The costs do not vanish. They move. They land on the taxpayer, who pays for the emergency room visit that the uninsured worker's employer never covered. They land on the competing business down the street that plays by the rules and loses the bid. And they land on the worker, as I will show in a moment.
5. The honest businessman is the first victim of the dishonest one. A contractor who follows the law and pays a legal wage, carries insurance and withholds taxes cannot beat a competitor who does none of these things. Rewarding the dishonest employer by looking away punishes the honest one. A conservative who believes in free markets should be the first to insist that the market be played by the same rules for everyone, because a market with an unenforced rule is not free, it is rigged in favor of the cheater.

What it does to the workers

Let me now turn to the worker, because the case against off-the-books employment is, in large part, the case for him.

A worker whose status is unlawful has a particular vulnerability, and unscrupulous employers know it. He may be reluctant to complain about unpaid wages, unsafe conditions or abuse, because a complaint invites scrutiny and possibly removal. This is not a rumor. It is the reason labor-standards officials have long worried about the connection between unlawful status and exploitation: the worker who cannot safely complain is the worker whom a bad employer can underpay, overwork and endanger.

Federal labor protections like the minimum wage and overtime rules of the Fair Labor Standards Act apply to workers on the job. But the law also has an uncomfortable edge here, and I would be doing you a disservice to leave it out. In Hoffman Plastic Compounds, Inc. v. NLRB in 2002, the Supreme Court held, in a five-to-four decision, that the National Labor Relations Board could not award back pay to a worker who had been fired for union activity if he was an unauthorized alien who had used false documents to get the job. The Court's reasoning was that awarding back pay for work he could not lawfully have performed would conflict with the policies of the immigration law. You can agree or disagree with the result, but note the dynamic it reveals: the law has to reconcile two goods, the protection of workers and the integrity of the immigration system, and the cleanest way to avoid the conflict is for the unlawful job never to exist in the first place.

The wage effect is real too, though economists argue about its size. We have a separate post on Two Economists, One Boatlift, and the Fight Over Immigration and Wages that gives the debate fairly. What nobody disputes is the direction of the pressure at the bottom of the labor market: an employer who can hire from a pool of workers who cannot negotiate has less reason to raise pay to attract people who can. The idea that there are "jobs Americans won't do" is more accurately described, as we argue in Jobs Americans Won't Do Is an Argument About Wages, Not About Americans, as jobs that some employers will not pay enough to fill. When the price rises, the labor appears. That is how markets work.

And there is the human cost on top of the wage cost. Cash jobs mean no workers' compensation if the worker is hurt, no unemployment insurance if he is laid off, no Social Security credit toward retirement, and no paper trail to prove that he worked. The employer who has pocketed those savings has taken them from a man who can least afford to lose them.

A worked example

Let me put some arithmetic on it, and I will label it as a hypothetical so that nobody mistakes it for a statistic. Picture two competing roofing contractors in the same town, each bidding on the same job. Each needs ten workers for twenty days.

Contractor A follows the law. He pays a legal wage, withholds and remits payroll taxes, buys workers' compensation insurance and verifies each worker's eligibility. Suppose, for the sake of the example, that all those legal overheads add twenty-five percent on top of the wages he pays.

Contractor B pays the same take-home wage to his crew, in cash, and skips the overhead entirely. His labor cost is wages alone.

On the same wage bill, Contractor B's labor cost is four-fifths of Contractor A's, because A's total is wages times 1.25, and B's is wages times 1.00, and 1.00 divided by 1.25 is 0.80. Twenty percent cheaper, on the labor, before a single other advantage. Contractor B wins the bid. Contractor A, if the pattern repeats, lays off his legal workers or goes out of business.

Notice, too, that Contractor B is the one on the evening news described as "helping" people. He is helping himself to a twenty percent discount, and the coverage somehow never gets around to the arithmetic. The point of the example is not that the numbers are real. It is that the incentive is, and it is easy to see who wins when the law is not enforced against the employer. The law-abiding contractor is punished for compliance, and the dishonest one rewarded. Nobody who values a level playing field, and conservatives are supposed to, should accept that.

What employer-first enforcement looks like

If the argument is right, the policy follows. Here is what it would involve, in outline.

1. Make verification universal and workable. The electronic verification system, E-Verify, was created in the 1990s as a pilot program and remains voluntary for most private employers. Conservatives are split on mandating it, and the split is worth reading. But whatever one decides, an honest employer should be able to check a worker's eligibility quickly and be protected when he does.
2. Aim penalties at the owner. Fines that are a small cost of doing business will be treated as one. A penalty regime that reaches the persons who profit, including the officers of the firm and the labor contractors who supply the workers, and that escalates for repeat offenders, changes the calculation.
3. Pursue the middlemen. A great deal of unlawful hiring runs through subcontractors and staffing intermediaries, which allows the end employer to claim he did not know. A statute that counts willful blindness as knowledge closes that gap.
4. Protect workers who report abuse. An enforcement system that treats a worker who complains about an employer as a target for removal makes the employer's job easier. If the aim is to punish the employer, the worker who testifies against him is a witness, and the system should treat him as one.
5. Open the legal door in proportion. A serious enforcement regime needs a lawful way to hire foreign workers where there is a genuine shortage, or the pressure will simply find another channel. That is a separate argument, and it belongs in the debate, but it is not an argument against enforcement.

The same direction of reform was recommended by the bipartisan commission chaired by Barbara Jordan in the 1990s, which wanted a more reliable verification system at the workplace. For that story, see Barbara Jordan's Commission Wanted Less Immigration and a Workplace Check.

The Founding angle

A word on why this is a matter of principle and not just of policy. The rule of law, the idea at the center of the Constitution, means that the law applies to the powerful as well as the weak. Article II, Section 3 charges the President to "take Care that the Laws be faithfully executed," and the laws in question include 8 U.S.C. 1324a. A law that is enforced against the poorest party and ignored for the party with the lawyer is not equal justice. It is a form of class privilege with a statute number. The conservative commitment to equal treatment under law demands that the employer who profits from a violation be held to the same standard as the worker who takes the job.

The case in brief

1. Every unlawful job has an employer who chooses to offer it, and the public debate has paid far too little attention to him.
2. The Immigration Reform and Control Act of 1986 made it unlawful to hire knowing a worker is unauthorized (now 8 U.S.C. 1324a) and required the I-9, but the "reasonably appears on its face to be genuine" standard and weak enforcement left the system porous.
3. Jobs are the magnet, cheap illegal labor shifts its costs to taxpayers, honest competitors and the workers themselves, and workers with unlawful status are the easiest to underpay and endanger.
4. Enforcement has historically fallen on workers more than on owners, which is unequal justice; employer-first enforcement means workable verification, owner-level penalties, action against middlemen and protection for workers who report abuse.
5. Under Article II, Section 3 the executive must see that the laws are faithfully executed, and that includes the ones that bind employers.

What you can do: ask your own employer-facing legislators, state and federal, where they stand on workplace verification, using the my representatives page, and read the current penalty schedule for employer violations on the Department of Homeland Security's website.