Bryan Caplan  

Is Illegality A Benefit?

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One of the strangest claims I've heard is that employers prefer to hire illegal immigrants because they don't have to pay them minimum wage or follow other labor market regulations.  I can imagine this happening under special circumstances (e.g. everyone else on the worksite is illegal, too).  But the key reason why illegal workers earn lower wages has to be that - from employers' point of view - the risks and hassle of hiring illegal workers outweigh the regulatory burden of hiring legal workers.  That's why amnesty raises wages of formerly illegal workers.

Question: Have you ever heard of someone pretending to be illegal in order to get a job?  (I do know of one case, but the job only lasted a day).

COMMENTS (8 to date)
Will writes:

I think the equivalent of "pretending to be illegal" is taking payment under-the-table, i.e. agreeing to an illegal, unreported work arrangement.

The restaurant I worked for in highschool paid everyone except the owner and his son were paid under-the-table. At least one of the staff was an illegal immigrant, I just wanted a job near enough to home that I could walk (my previous job, a substantial portion of my income was going towards paying for the bus to-and-from).

In college I had two jobs that were under-the-table arrangements. One was a job for an auto-mechanic were it was a small mom-and-pop shop that again paid all their workers (legal or not) under the table.

The second was that I worked for a research professor who was starting a company on the side. He tended to hire his lab students as work for the start-up, and we were paid under-the-table. This let him hire talented researchers who already knew most of the important techniques (from working in his lab) without having to deal with visa issues (most of the lab only had student visas). In my case despite being a US citizen, I was bullied into it by a threat to withhold a letter of recommendation for graduate school.

In graduate school I worked under-the-table for two different start-ups. Here I was paid an actual market wage, I have a feeling the under-the-table nature was due to incompetent payroll management of the organizations in question.

Finally, a few years ago I was doing freelance statistical consulting work, and a few different small companies wanted to play legal games with the way they paid me, probably as a tax manipulation, but I was never sure.

In short, in my experience, quasi-legal and illegal work arrangements abound not only for immigrants but for US citizens as well. In many cases, it seems like its as much laziness on the part of the small-business owner as it is anything else.

Foobarista writes:

I've never heard of anyone pretending to be illegal to get a job, but my wife has run into numerous small businesses which only hire illegals. Typically the owner of the biz is also illegal, or the only formal "employees" are family members.

In CA, in particular, taxes and regulations are onerous to the point where it's virtually impossible to hire low-end workers in a low-margin business and compete without hiring the workers under the table. Without extensive changes to labor law, there will always be a "demand pull" for workers who are willing to work under the table.

Note also that this isn't necessarily about minimum wages, as often the under-the-table rate is above the minimum wage. It's about avoiding taxes, unemployment insurance, payroll overhead, workman's comp, etc, as well as being able to deal with "in-kind" payments such as "three hots & a cot + cash" for a cook, which is hard to do legally without a bevy of labor and tax attorneys at your disposal.

Foobarista writes:

@Will: setting up payroll is actually rather daunting, which is why many garage startups do the under-the-table thing. And you'll immediately save 7.62% (and more likely 15+%) in payroll tax overhead + 1-3% unemployment insurance + at least $20 or so per paycheck for payroll processing + several hundred dollars (at least) in formal startup expenses.

And if workman's comp is an issue, things get really advantageous for an employer to hire under-the-table.

Kevin writes:

No, but it seems like another counter-argument is easier to make. It's the avoidance of various regulations that makes illegals preferable as workers then legals could simply act like an illegal without claiming to be one (e.g., offering to work for less than minimum wage).

Does that happen?

S writes:

Its almost like some people believe regulatory compliance imposes costs, or something. Strange indeed. I mean, where do they find these people anyway?

And we all know how tough the government is on employers who higher illegal immigrants. Oh, wait...

LZ writes:

Not illegal immigrants per se, but there are some real legitimate tax breaks for non-citizens working in the US:
Tax break for migrant farm workers from foreign countries

I wonder if American farm workers ever pretend to be foreign farm workers.

Foobarista writes:

Some examples of "under the table" work commonly done by illegal workers:

1. Caregivers. The workers are often directly brought to the US to do the work and paid in room & board + cash. These jobs are quite popular with middle-aged women who want to send cash home.

2. Lots of restaurant jobs, particularly in lower-end neighborhood restaurants.

3. Farm work.

4. Construction and contractor work.

The mental model used by most people for illegals is people who work for "ordinary" businesses but who fake paperwork to get jobs - certainly, this is what you hear about when people talk about regulations, employer checks, "better enforcement", etc. I guess these people exist, but my guess is many if not most illegals work under the table for "quasi-legal" businesses or do casual or direct labor for individuals. Part of the reason few economists or bureaucrats encounter this is they don't speak Spanish, Chinese, Thai, etc - and because dealing with this directly requires grappling with far harder issues than just "comprehensive immigration reform".

Anon writes:

I had a nanny applicant pretend to be illegal to try to get me to agree to pay her under the table. I was in a job that made it more iffy than usual to not go through full formal channels, so I suppose she thought we'd be more likely to agree if she had a reason for asking.

She later told us it was widely agreed among nannies that "legitimate" paychecks resulted in less pay, even beyond withholding - this was NYC, and you basically had to have an independent small business registered with everyone in creation to hire a nanny above board, all of the overhead for which came out of the nanny's paycheck.

Apparently it was also richer and "higher status" households that would commonly pay nannies legitimately, and those were thought to be much more unpleasant employers.

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