Immigration Policies and Their Impact on Small Business

By Mark Krikorian on May 10, 2007

Statement of
Mark Krikorian
Executive Director, Center for Immigration Studies

Before the Small Business Committee
U.S. House of Representatives

Thank you for the opportunity to appear before this panel. There are many facets to the issue of immigration and small business, but perhaps the best place to start is with the opinions of small business owners themselves.

The National Federal of Independent Business, or NFIB, is the nation's premier small-business lobbying organization, and it surveyed its members just last year on this issue. More than 90 percent of NFIB members consider illegal immigration to be a problem, with 70 percent ranking it a serious or very serious problem. Eighty-six percent of these small-business owners said illegal immigration have a high or very high priority for Congress and the administration, and 78 percent wanted increased penalties for employers who knowingly hire illegal aliens.

Getting to even smaller businesses, the National Association for the Self-Employed, or NASE, which describes itself as the voice of micro-business, found similar sentiments among its members in a survey last year. Seventy-six percent of these micro-business owners believe that illegal immigration is a serious issue facing the nation, 82 percent oppose amnesty, and 84 percent want tougher penalties on companies that hire illegal immigrants.

None of this should be surprising, because with small-business ownership and entrepreneurship are so widespread in our country, small business is America. The views of small-business owners simply reflect the broad dissatisfaction with our current policy of effectively open borders through non-enforcement of the immigration laws. Thus, in a sense, the effects that mass immigration has on small business is the same as on society as a whole erosion of the rule of law, increasing tax burdens, security vulnerabilities, etc.

But there are a number of issues that are specific to small business and warrant further discussion.

1) The large-scale use of foreign labor is harmful in the long run even to the small businesses using it. As Barbara Jordan's Commission on Immigration Reform wrote in 1997: The availability of foreign workers may create a dependency on them. It has been well-documented that reliance on foreign workers in low-wage, low-skill occupations, such as farm work, creates disincentives for employers to improve pay and working conditions for American workers. When employers fail to recruit domestically or to pay wages that meet industry-wide standards, the resulting dependence even on professionals may adversely affect both U.S. workers in that occupation and U.S. companies that adhere to appropriate labor standards.

In other words, as with drugs or alcohol, the easy availability of foreign labor can create a sort of addiction, rendering the user incapable of imagining operating without a fix. But in a free market system like ours, industries evolve and adapt in response to changing labor characteristics and labor standards. Nearly a century ago, small businessmen claimed that child labor was essential to business; one mill owner said that limiting child labor would stop my machines; another said investors would never receive another dividend; while a third said that ending child labor would paralyze the country.

Of course, it didn't work out that way, precisely because a flexible economy like ours can and will adapt itself to changing labor standards. And when lawmakers get around to acknowledging the existing social consensus against addiction to foreign labor both legal and illegal those industries where some small businesses have already become addicted will adapt in ways that Adam Smith would have easily understood: offering better wages and benefits, and changing working conditions and recruitment, to attract legal workers while at the same time finding ways of using the existing labor pool more efficiently. Those who say those is not possible are telling the truth, as they see it the problem is that they can't see the forest for the trees. It's Congress's job to look at the whole forest, not focus on one tree.

2) Another issue of specific interest to small business is the question of electronic verification of all new workers identities. This is the most important element in any serious enforcement system, and it is precisely the lack of such a mandate that has made current immigration law unworkable.

Some claim that such a requirement would be burdensome for employers, and especially for small businesses, which almost by definition lack the extensive human-resources departments of large corporations and thus have a harder time dealing with the proliferating mandates coming from all levels of government. As a small businessman myself, I appreciate the multitude of regulations small business faces; just looking at posters on the wall in the work room of my Center for Immigration Studies, I see references to the Civil Rights Act, the Occupational Safety and Health Act, the Family and Medical Leave Act, the Employee Polygraph Protection Act, the Drug-Free Workplace Act, the Youth Employment Act, the Older Americans Act, and the Uniformed Services Employment and Reemployment Rights Act among others. As even George McGovern learned, legislators and government regulators must more carefully consider the economic and management burdens we have been imposing on U.S. business.

Which is why it's a good thing that mandatory employment-eligibility verification would not be especially burdensome to employers. The information to be verified all has to be collected anyway as part of the normal hiring process. The only way employers would no longer have to collect a news hire's name, date of birth, and Social Security number is if Congress abolished the Social Security system and income tax withholding which I don't see on the horizon. That being the case, verifying (at no cost to the business) the information that employees have to provide anyway is hardly a new mandate.

Experience with the existing voluntary system, once called the Basic Pilot and now renamed the Employment Eligibility Verification Program (EEVP), shows that it would be no burden at all. I speak from experience my own small business participates in the program. A growing number of businesses seem to agree, as is clear from the rapid growth in participation; from 2,300 employers in 2003, it grew to nearly 9,000 participating employers by the middle of last year, and is now thousands higher, especially after Dunkin Donuts required all 5,000 of its franchisees to enroll last year.

If there had been vigorous worksite enforcement of the immigration laws in recent years, you might be able to argue this growth in participation wasn't really voluntary; in other words, businesses caught employing illegals being told by immigration authorities to enroll in the system, or, at the very least, businesses enrolling out of fear of possible enforcement. But, of course, worksite enforcement of immigration laws has been all but abandoned until recently; in 1998, 1,023 employers were issued notices of intent to fine by the INS, a number which fell to three (3) in 2004. And most of that collapse in enforcement came before 9/11, and so had nothing to do with a new focus on terrorism. Given the complete lack of enforcement, businesses would not be flocking to this program if it represented a significant impediment to their operations.

Were Congress to make verification mandatory for all businesses, it would also create a market opportunity for entrepreneurs to further simplify the process and integrate it into a firm's operations. And, in fact, such entrepreneurs are already stepping forward. DHS has approved the first of what are likely to be many Designated Agents companies in the business of conducting the verification process for other firms. The first such firm, Form I-9 Compliance in Newport Beach, Calif.,, offers a web-based, paperless I-9 form linked to the EEVP, and includes extra services as well, such as reminders of the upcoming expiration of an alien worker's employment authorization. Such services do what TurboTax does for tax filing eliminate paper, reduce errors, and file (or in this case verify) electronically. And like TurboTax, they are likely to be available at a reasonable cost, especially when economies of scale come into play. I don't know what Form I-9 Compliance charges, but I use an outside payroll service for my small business and payroll is obviously a much more complex process than one-time verification of legal status and I pay only about $130 a month.

But it's not just that a verification system would sit lightly on the back of business; it actually makes good business sense to participate. Many small businesses might well be alarmed by all the talk they've been hearing of penalizing employers as an immigration-enforcement strategy. While crooked, faithless employers deserve whatever penalties they receive, the point to an employer-verification system is not to penalize employers, but to empower them. By taking the guesswork out of hiring a legal workforce, the EEVP can help firms build a workforce on concrete rather than sand, a workforce that will have no reason to run away if there's an immigration raid, a workforce that won't be arrested when the inevitable and I believe it is inevitable crackdown comes.

As beneficial as many firms find it to verify their workers, it is important for Congress to make participation mandatory not for punitive reasons, but rather to protect legitimate, patriotic businesses. I was told of a landscaper in Orange County who recognized the advantages of hiring only legal workers, and several years ago enrolled in the old Basic Pilot. He had no trouble finding labor, though he had to offer a dollar an hour more than his competitors and that was the problem. His competitors, still hiring illegal aliens, were underbidding him on commercial landscaping contracts and he was forced to drop out. Congress has a responsibility to level the playing field and ensure that civic-minded, law-abiding firms eager to participate in the verification program are not put at a disadvantage for doing so.

3) Another concern related to small business is whether tighter enforcement and lower immigration levels would reduce entrepreneurship. Much of the commentary about immigration points to its supposed contribution to entrepreneurship, serving as a kind of booster shot for a tired America. If this were true, a tighter immigration system might harm small business overall by undermining our nation's entrepreneurial energies.

Fortunately, this is not true. Immigrants are actually slightly less likely to be self-employed than native-born Americans, 11 percent vs. 13 percent. Immigrants from some countries are indeed more likely to start small businesses such as those from Korea, Russia, and Iran, for instance. But overall, entrepreneurship is not distinguishing characteristic of the nation's immigrants. If one removed immigrants from the data, the overall rate of self-employment in the United States would be about same.

4) Perhaps most serious is the morally subversive effects of mass illegal and legal immigration on the nation's work ethic. White House advisor Karl Rove unwittingly demonstrated the insidious effects of mass immigration in comments last year to the National Federation of Independent Business:

Now frankly, I don't want my kid digging ditches. I don't want my kid slinging tar. But I know somebody's got to do it. And we ought to have a system that allows people who want to come here to work to do jobs for which Americans are not lining up.

One small businessman who was present during Rove's comments wrote to me that:

The remarks shocked me, as I think it shocked most people in the room. The small business folks were to polite to boo, but you could hear the disappointment and snickers of dissatisfaction rumble through audience immediately after those remarks. Many of the small business people in attendance got their start doing tough jobs in the family business or started their businesses from very humble beginnings. I can tell you they did not take kindly to his remarks.

And this February, Mr. Rove reiterated this sense that blue-collar work is beneath Americans, and foreigners need to be imported to do it, when he told a Republican womens group that I don't want my 17-year-old son to have to pick tomatoes or make beds in Las Vegas.

This cuts at the very heart of America's small-business culture the sense that all work is honorable, that even the boss will do the lowest job if necessary, that working as a government or corporate bureaucrat is not the highest calling. In other words, if occupations come to be dominated by immigrants (as is already true in some regions and would be inevitable nationwide under the proposals to increase immigration further), they become socially unacceptable for Americans, moving us toward a master-servant society, one more like Saudi Arabia or the antebellum South than we should be comfortable with.

In short, large-scale immigration whether of illegal aliens, guestworkers, or permanent immigrants subsidizes the operations of a small portion of small-business owners but is harmful to small business as a whole, and harmful to the nation.

Mark Krikorian is Executive Director of the Center for Immigration Studies (, a non-profit, non-partisan research organization in Washington, D.C. which examines the impact of immigration on the United States. The Center is animated by a pro-immigrant, low-immigration vision which seeks fewer immigrants but a warmer welcome for those admitted.

Mr. Krikorian frequently testifies before Congress and has published articles in The Washington Post, The New York Times, Commentary, National Review, and elsewhere, and has appeared on 60 Minutes, Nightline, the NewsHour with Jim Lehrer, CNN, National Public Radio and on many other television and radio programs.

Mr. Krikorian holds a master's degree from the Fletcher School of Law and Diplomacy and a bachelor's degree from Georgetown University, and spent two years at Yerevan State University in then-Soviet Armenia. Before joining the Center in February 1995, he held a variety of editorial and writing positions.