Small businesses that break rules get edge

Consuelo Gomez, who owns a cleaning/landscaping business in Bellevue, Wash., thinks she is being undercut by rivals. "I'll hear, 'They're $2,000 cheaper than you,' and I say, 'That's impossible.' "
Consuelo Gomez, who owns a cleaning/landscaping business in Bellevue, Wash., thinks she is being undercut by rivals. "I'll hear, 'They're $2,000 cheaper than you,' and I say, 'That's impossible.' " (AP)
Posted: April 23, 2013

She could save money, and there's a good chance she wouldn't get caught, but Consuelo Gomez won't hire people who aren't authorized to work in the United States to work for Marty K, her cleaning and landscaping business.

She believes she's being undercut by competitors that hire workers without permission. When potential clients tell her that rivals can do the same work for less, she is suspicious.

"I'll hear, 'They're $2,000 cheaper than you,' and I say, 'That's impossible,' " said Gomez, whose business is in Bellevue, Wash. "I can't fathom how they do it, because we would lose money."

Competing with companies that hire immigrants not authorized to work in the United States is tough. Sixty-eight percent of business owners surveyed last month by the advocacy group Small Business Majority said too many companies gain an unfair advantage that way.

In 2008, the Pew Hispanic Center estimated 8.3 million people were working without permission. Current estimates put the total number at 11 million. The issue is in the forefront as lawmakers propose ideas to reform U.S. immigration laws.

"What small businesses want the most is a level playing field where they can compete fairly," said Small Business Majority CEO John Arensmeyer. "Unless we fix the immigration system, small businesses are going to . . . operate at a disadvantage with companies that aren't following the law."

The number of businesses hiring ineligible workers is hard to pin down, although a study last year by the Federal Reserve Bank of Atlanta found 1.6 percent of the 365,000 businesses it examined in Georgia did so. It also showed those employers had an advantage: Companies employing unauthorized workers had a 23 percent chance of failing, compared with 28 percent for all companies.

A 2002 study by researchers at the University of Illinois at Chicago found the average hourly wage earned by ineligible workers was $7, higher than the minimum wage of $5.15 at the time. But the competitive advantage is not just about salary. Companies also pay Social Security and Medicare taxes on each worker.

For example, a company with a $500,000 annual payroll is required to pay more than $38,000 in federal taxes. States may collect additional payroll taxes from businesses.

Soon, many small-business owners will be required to provide health-care insurance or pay a penalty. If a business pays its workers off the books, it can save thousands.

History shows employers underpay ineligible workers, said Raul Hinojosa-Ojeda, a UCLA professor. He wrote a 2010 study about the impact of the 1986 Immigration Reform and Control Act, which gave permanent-resident status to three million people. Their pay rose sharply as their status changed.

"All of a sudden . . . wages pop up about 18 percent and in some states, even higher, and among women, higher still because they were getting even lower wages," he said.

But paying higher wages to workers who became permanent residents didn't hurt many businesses, Hinojosa-Ojeda said. Most adjusted, though some dependent on below-minimum wages failed.

A Senate bill, if enacted, would set the 11 million immigrants in the United States illegally on a 13-year path to citizenship after steps were taken to secure the border. A proposed "W" visa would admit 20,000 low-skilled foreign workers in 2015 and could grow to 200,000 after five years. Business groups say the numbers are too low.

Companies knowingly employing ineligible people face federal fines of $375 to $16,000 per worker. But many companies decide it's worth the risk. Convictions are relatively low.

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