Minimum Wage and Illegal Immigration March 17, 2009

Background of the problem

The Employment Policy Institute has a significant interest in minimum wage policies and has recently been interested in the effects of a change in minimum wage on illegal immigration in the United States. There have been previous attempts to address both the problem of illegal immigration and the policy of minimum wage, individually. Linking the two together, however, may prove to be significant in improving the problem and the policy.

In 1986, President Reagan signed the Immigration Reform and Control Act, which penalized employers for hiring illegal immigrants. Since that time, numerous other attempts have been made to address illegal immigration including the idea of building a wall and granting amnesty to current illegal immigrants living in the United States.

Minimum wage is a policy that has been debated and changed since the FDR administration. This policy has also been subject to partisan divide between Republicans and Democrats. In 2007, the Fair Minimum Wage Act increased the minimum wage rate from $5.15 to $5.85, and then, in 2008, to $6.55, and in 2009, to $7.25 under this current law. With this, Senator Ted Kennedy, a veteran of the Democratic Party, has vowed to address the possibility of a $9.50 rate by 2012. An assessment linking both minimum wage and its effects on illegal immigration is needed, but it also has some built-in limitations. First, illegal immigration statistics are based on estimations. Conclusions drawn from this data could be considered by certain stakeholders as speculation. Second, the connection between illegal immigration and minimum wage is a new concept, of which there is no comparable evidence or known precedent that can be followed.

Significance of the Problem

From 1980 to present day, illegal immigration has been a significant problem and will only become more significant as the problems in Mexico escalate. In 2006, one third of all immigrants in the United States were considered illegal aliens. 80% of these illegal aliens come from Latin American countries, primarily Mexico. In January of 2008, there were an estimated 11.6 million illegal immigrants living in the United States. This number was down from 11.8 million in 2007. Below in Table 1 are the estimated number of illegal immigrants and the years they entered the United States.

Table: 1

Period of Entry	Number of illegal immigrants	% of the current population of illegal immigrants
1980-1984	900,000	8%
1985-1989	1,310,000	11%
1990-1994	1,800,000	16%
1995-1999	3,260,000	28%
2000-2004	3,250,000	28%
2005-2007	1,070,000	9%

The illegal immigrants who are coming to the United States are working in low-wage jobs. In 1998, immigrants, legal in this regard, had an average wage that was 34% lower than an American with comparable skills and/or job. It is estimated that illegal immigrants' wages were lower than that. While these numbers are high, they are even higher when you look at the historical number of unemployed in the United States, as well as the demographics of those earning at or below minimum wage. Below in table 2, are the employed earning at or below the minimum wage and the unemployment rates of the same years as the period of entry years of table 1.

Table: 2

Years	Unemployment totals	Unemployment Rate	Minimum Wage Earners	Minimum Wage earners percent of total wage earners
1980-1984	9,168	8.3	6,878,800	13.24%
1985-1989	7,440	6.2	4,477,000	7.64%
1990-1994	8,444	6.6	4,378,400	6.82%
1995-1999	6,693	4.9	3,980,200	5.78%
2000-2004	7,558	5.2	2,214,600	3.04%
2005-2007	7,223	4.8	1,767,667	2.33%

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As previous stated, illegal immigrants are obtaining low-wage jobs in the US. These are jobs that would, if an employer was following the law, be filled by minimum wage workers. Looking at the demographics of those employees that earn minimum wage provides the following characteristics:

· 50.4% of wage earners at and below minimum wage are 16-24 years of age, or 1,122,000 workers.

· 24.5% of wage earners at or below minimum wage are 16-19 years of age, or 545,000 workers.

· Men make up 32.7% or 728,000 workers and women make 67.3% or 1,498,000 workers of wage earners at or below minimum wage.

· 60.8% or 1,353,000 workers are part-time and 39.2% or 873,000 workers are full-time.

Problem Significance

Just looking at the data, it could be perceived that illegal immigrants would be taking jobs from women 16-24 years of age who work part-time. While there is data to support this, it is not the case because illegal immigrants in America are:

· 57% male.

· Within the 18-34 age group males make up 62%, and women make up 52% of the 45-over age group.

This data provides significant indication that there is no correlation between minimum wage and illegal immigration based on the current minimum wage rate. This is because a majority of the workers who would be affected by a minimum wage increase would be a different demographic group from those who would be losing jobs from an increase in illegal immigration. The question that arises now is what effect illegal immigration would have on male workers who are 16-24 years old and work part-time.

Analysis of Alternatives

As stated above, there is a political push to raise the minimum wage again to $9.50. This is a hotly debated policy change and will be debated significantly more with the current economic crisis. Because of this, there are three alternatives policies that could potentially affect the illegal immigration problem in the US. The three alternatives are: raising minimum wage to $9.50, keeping current minimum wage laws intact, and allow states with illegal immigration problems to set a wage lower than the federal level.

Keeping current minimum wage laws in place would result in a raise to $7.25 in July of 2009 with this being the last incremental raise of the current law. This would allow employers to keep their cost of labor at a minimum, which would significantly affect production in this current financial situation. Also, illegal immigration in the US decreased from 2007 to 2008 by 200,000.

A more radical alternative, one that is not very politically feasible, is to allow states with illegal immigration problems to set a minimum wage that is less than the federal wage. This would require the current minimum wage law to be amended and could lead to a challenge in a US court over the legality of it. Below are the states that have a significant illegal immigrant problem:

States	2008 illegal immigrant pop.	Percentage of total illegal immigrant pop.
California	2,850,000	25%
Texas	1,680,000	14%
Florida	840,000	7%
Arizona	560,000	5%

The states with the most significant illegal immigration problem are states that border Latin American countries (with Mexico being the most important), or, in the case of Florida, in close proximity to Latin American countries.

Conclusions and Recommendations

Because the evidence for illegal immigration is so unpredictable, it is hard to quantifiably analyze the effects minimum wage would have on illegal immigration. There are initial conclusions based on the three alternatives. Raising the minimum wage would increase the standard of living for more employees but also increase the gap between an American’s wage rate and an illegal immigrant’s wage rate. Based on the law of supply and demand, more illegal immigrants would venture into America in search of jobs. Also, unless the minimum wage is raised in concurrence with stricter penalties for hiring illegal immigrants, employers will provide more work to illegal immigrants to lower their cost of labor.

Keeping minimum wage where it is currently would allow the government to continue to limit the amount of illegal immigrants in the US. Finally, allowing certain states to set minimum wage rates lower than the Federal rate would allow legal residents of these states, within certain industries that have the highest percent of illegal immigration, to be more competitive in the job market. This would give the employer the opportunity to hire Americans at a lower labor cost.

Based on the evidence from the data provided and after analyzing that data, there is currently no relationship that indicates a significant link between minimum wage and illegal immigration. Looking historically, it could be seen that the increase in minimum wage in the years from 1990 to 1993 may have caused a large spike in the number of illegal immigrants that came into the country in the period of years that followed. On the opposite side of that, 2006 to the present has seen the most increases in minimum wage for that short of a time span and the number of illegal immigrants has decreased significantly. There could be other variables that caused this decrease and possibly skewed the data, such as a stricter effort to thwart illegal immigration. Once again the opposite side is that a spike in illegal immigrants in this county could be caused by the current situation in Mexico with more Mexicans fleeing their country to find work in the United States.

While I feel that the minimum wage laws facilitate illegal immigrants obtaining jobs in the United States, there is no evidence to support the increase in minimum wage coinciding with an increase in illegal immigration. There are too many external variables that affect immigrants coming to America for this to be true. Working for minimum wage is insignificant in their choice to migrate. External variables such as the failing economy in Mexico play a bigger role. My recommendation is that illegal immigration should not be considered as a significant variable in deciding whether or not to raise minimum wage.