Measuring impact of illegal immigrants on the economy is difficult, but an increasing number of them are consumers with roots in Arizona's communities.

Second of four parts

JONATHAN HIGUERA and DANIEL GONZALEZ
The Arizona Republic

They are a net drain on the economy. Mostly employed in low-wage, low-skill industries, they drive down wages and take jobs away from Americans. They strain public schools, choke hospital emergency rooms and sap welfare.
This is a common perception in Arizona of the impact of illegal immigrants on the state's economy. And it is partly true.

But it's also true, according to research, that illegal immigrants perform jobs that might otherwise go unfilled and are especially crucial to several of the state's key industries, including restaurants, tourism, landscaping and all-important home construction. Their willingness to accept low wages keeps prices down and profits up.

They spend at least hundreds of millions, and maybe billions, of dollars on everything from consumer goods and services to homes. Most pay taxes. And illegal immigrants in the United States are paying billions of dollars into Social Security that they won't collect.

So what's the bottom line? Do illegal immigrants contribute more than they take from the economy? The answer: It's impossible to say.

"You could win the Nobel Prize if you could answer that question in a very precise way," said Robert Grosse, a professor at Thunderbird, the Garvin School of International Management, in Glendale.

The only thing that is clear is that illegal immigrants have become an integral part of the state's economy, especially because an increasing number of them are families that have sunk roots into Arizona's communities. As a result, any move to uproot them or change their status would have a profound impact on the economy both good and bad.

Measuring the impact of illegal immigrants on the economy is difficult. Costs are far easier to measure than the benefits. Research on illegal immigration is questionable and often colored by political agendas. And the data often don't capture aspects such as upward mobility, productivity and entrepreneurship.

For instance, estimates of the cost of providing health care to uninsured illegal immigrants in Arizona differ by hundreds of millions of dollars, a gap so wide it's virtually useless for policy purposes. Crude cost estimates of educating illegal children in Arizona's public schools range from $250 million to $275 million. But there is debate about whether the cost of educating the U.S.-born children of illegal immigrants should also be counted as a cost, even though the U.S. Supreme Court has ruled that all citizens are entitled to a public education.

The lines also get blurred when it comes to public assistance because U.S.-born children have a right to things such as food stamps and other public assistance, while illegal parents don't. Illegal immigrants don't qualify for welfare benefits, and there is no evidence of widespread fraud. A state inquiry into welfare fraud found only two cases involving illegal immigrants during the first half of this year. The inquiry was prompted by voter approval of Proposition 200, which requires proof of citizenship to vote and to apply for certain public benefits.

The overall cost of social services provided to illegal immigrants can be significant in a state where researchers estimate 1 in 11 residents is illegal.

The Federation for American Immigration Reform, a Washington, D.C., group that favors strict immigration policies, estimates illegal immigrants cost Arizona taxpayers $1.3 billion a year for education, medical care and incarceration vs. the $257 million they pay in state and local taxes. Other researchers, such as Arizona State University economists Tom Rex and Dawn McLaren, consider FAIR's numbers inflated.

In his State of the Union address in February, President Bush made it clear that he believes illegal workers are contributing to the nation's economy, saying: "America's immigration system is ... outdated, unsuited to the needs of our economy and to the values of our country. We should not be content with laws that punish hardworking people who want only to provide for their families and deny businesses willing workers and invite chaos at our border."

A 1997 study by the National Academy of Sciences, one of the few studies to look at the tax contributions from and the cost of providing public services to legal and illegal immigrants, concluded that they end up contributing more than they take over their lifetimes. However, it also found that those with less than a high school education end up costing slightly more than they contribute. The study did not provide separate findings for legal and illegal immigrants.

Gains and drains

There are several indisputable contributions to the economy that illegal immigrants make.

For example, the majority pay income taxes and are helping prop up Social Security at a time when waves of retiring baby boomers threaten to bankrupt the program. Most illegal immigrants will never recoup what they pay into Social Security. In 2002, the last year for which figures are available, their payroll taxes gave the fund a $6.9 billion boost.

The buying power, or after-tax income, of illegal immigrants also is important to Arizona. Mexican immigrants, legal and illegal, accounted for 3.1 percent, or nearly $4.2 billion, of the purchasing power of all consumers in the state in 2002, a Thunderbird study found.

Businesses - including banks, insurers, money-transfer services and car dealers - recognize the opportunity and are less concerned about the politics of immigration.

One is Wells Fargo, which has eased the identification requirements for opening a bank account and is considering doing the same for mortgages.

"We have no reason to ask a person's residency status," said Al Montoya, senior vice president in charge of growth markets for Wells Fargo. "Any business decision is based on value and what's going to provide shareholder value."

Many industries in Arizona have become heavily dependent on illegal workers, especially Mexicans. Illegal Mexicans accounted for 254,700, or 12 percent, of the state's work force in 2000, Thunderbird estimated in a 2003 report.

There is not a more recent estimate. But other data indicate that the number is now higher: Since 2000, the state has gained 200,000 illegal immigrants, the majority of whom came from Mexico, according to the Pew Hispanic Center, a nonpartisan research center in Washington, D.C.

At least privately, people in the home-building industry, a crucial engine in the state's economy, say that it could not churn out nearly as many houses as it does at such a low cost without illegal workers.

Nationally, illegal workers constitute more than 20 percent of many construction occupations; the share is as high or higher in Arizona.

"The way construction is going right now in Arizona, I don't know what we'd do without them," said Tom Quine, head of training at the Southwest Regional Council of Carpenters.

A study by the Center for Labor Market Studies at Northeastern University in Boston concluded that new immigrants, legal and illegal, filled more than half of the massive number of new jobs created in the United States in the 1990s, and without them, major labor shortages would have occurred.

On the flip side, new immigrants took jobs that otherwise might have gone to high school students and young adults from 2000 to 2004, when the economy slowed, according to another Northeastern study.

"Employers think they are better workers," said Paul Harrington, a labor economist at Northeastern, who was involved in both studies. "They find their work ethic much stronger. They are much more productive, and employers prefer them relative to the native-born population."

Illegal workers' acceptance of lower wages also has two sides. Some research suggests, and many economists believe, that it helps keep inflation in check. But it also depresses wages in industries where they are a force, such as construction.