Immigration and the 'Informal Economy'

By Jerry Kammer, February 21, 2011

National Public Radio last week reported a story from Phoenix that was intended to illustrate a recent finding by the Pew Hispanic Center. Pew reported that in the second quarter of 2010, American citizens lost more than a million jobs while foreign-born workers gained 656,000 jobs.

To illustrate the phenomenon, NPR reporter Ted Robbins contrasted the story of an American woman who was born in Arizona and a Mexican man living there as an illegal immigrant. The woman was laid off from her white-collar job with worldwide shipper DHL and has been unable to find work. The man, a former construction worker and the single father of three, now installs alarm systems for $30 a day and looks for motorists in need of mechanical help.

Former U.S. Labor Department official Maria Echaveste told Robbins that desperation drives illegal immigrants to take whatever they can find. "If they don't have a safety net for food and housing, they're going to be scrambling to find a job at whatever price, under whatever conditions," she said.

The story offered a glimpse into one of the unpleasant consequences of illegal immigration: the growth of what is known in Mexico as the "informal economy." It is a Dickensian netherworld of insecure jobs that pay poorly, aren't covered by labor laws, don't generate taxes, and don't help fund the social security system.

The informal economy is huge in Mexico. Its millions of workers hustle, improvise, and take what they can get. Their orientation is short-term, toward daily survival. They can only dream of an orderly existence with decent wages that open up a long-term horizon and hopes of a decent standard of living.

In such an environment, respect for the rule of law, the rights of others, and the obligations of citizenship withers away. "All across Mexico, roving vendors, street stands, storefronts and even trendy bars peddle pirated DVDs, masquerade tequila, copy-cat fashion brands and other untaxed goods," the news service Frontera NorteSur reported recently. The story quoted a business advocate who lamented that in Mexico, "Piracy is an industry; contraband is an industry."

The "comprehensive immigration reform" sought by the Obama administration would offer many workers the legal right to pursue work in the formal economy. But their opportunity for upward mobility would be weakened by the steady expansion of the informal economy.

Moreover, such a "comprehensive" reform, as generally proposed, would provide low-wage employers a steady supply of workers who are poorly educated and unskilled. This would cause a boom in the population of those like the man in Phoenix who are willing to accept whatever they can find, especially during an economic downturn. And since this approach would put these new workers on a path to citizenship, they would have the legal right to bring in their relatives, who are likely to have similarly poor education and skills.

At a time when millions of Americans remain unemployed, increasingly desperate, and increasingly disaffected from their government, a push for "comprehensive" reform seems particularly unwise. Beyond the strains it would impose on the labor market, consider another effect noted by Paul Krugman.

Krugman noted that "modern America is a welfare state, even if our social safety net has more holes in it than it should – and low skill immigrants threaten to unravel that safety net."

As the federal and state governments finally recognize their inability to pay for basic services, do we really want reforms that would compound that problem? Would that be immigration in the national interest?