New Immigration Regulation Will Hurt Small Businesses

For decades and probably longer, the government and small businesses have played a cat and mouse game over illegal workers. Small businesses have often borne the brunt of haphazard enforcement efforts because the nation has never come up with a workable policy on illegal immigration.

Things are no different today. The government still doesn't have an effective policy, and it's still trying to bear down on small business owners. It's come up with a new policy that stiffens criminal penalties, increases fines, and makes it easier for owners to be prosecuted for employing illegal aliens. But critics say the policy will drastically increase red tape for employers, lead to indiscriminate firings, and in the end will simply drive workers into the nation's vast, untaxed underground economy.

The latest effort to force employers to play immigration cop involves so-called "No Match" letters. The Social Security Administration (SSA) routinely sends them to employers when it discovers that a worker's W-2 income statement doesn't match Social Security records. Often the problem involves a simple clerical error; for example, a misspelling, a transposed number, or a name change as a result of marriage or divorce. But they can also spotlight illegal workers who are using false or stolen Social Security numbers.

On its face, the new regulation might seem to have merit. The black market for falsified Social Security numbers is huge, and identity theft is a growing problem. In addition, more than 12 million immigrants are believed to be in the country illegally, and at least 7 million of them have jobs, according to government statistics.

In a recent news conference announcing the new rule, Department of Homeland Security Secretary Michael Chertoff likened the process to complying with the tax code, which essentially relies on self-policing. "If the company does nothing to resolve the problem or doesn't act in good faith, that company could face stiff penalties or sanctions," said Chertoff. "Deterrence really works marvelously."

Indeed, employers could face criminal prosecution and up to $10,000 in fines. For the first time, the government will also be able to use the no-match letters to establish that employers have "constructive knowledge" of immigration law violations. That means they could be charged based on scant evidence.

The rule contains a so-called "safe harbor" section that protects employers from prosecution, but it now requires them to take several active steps to correct errors. Before, it was left up to the employee. Discrepancies must be resolved within 90 days. If not, the employer is required to fire the employee to avoid becoming a target for further investigation.

But that's only one of the reasons why this effort is wrongheaded. It also defies the reality of today's marketplace. For more than two years, small businesses have been struggling with a hiring crunch that shows no signs of abating. Even with the current economic slowdown, the jobless rate was 4.6 percent in July, which is tantamount to full employment. The challenge of finding qualified workers "is not just a cyclical annoyance, but a serious long-term problem," according to the National Association of Manufacturers' most recent economic report.

While the hiring crunch affects just about all small businesses, farmers are most likely to bear the brunt of the change. The California Farm Bureau Federation reports that that new regulation is posing a particular "dilemma" for its members. Farmers fear they may have to fire employees, crippling their operations and making it impossible to harvest crops, which could spell financial ruin.

Given the difficulty in hiring new workers, small business owners may simply rehire their fired workers "off the books," according to the National Immigration Law Center, one of several groups that opposes the measure.

The University of Illinois at Chicago conducted a wide-ranging study of the program in 2003 and called for its abolishment. "Rather than removing undocumented immigrants from labor markets, the no-match letter program catalyzed a policy-induced churning in local labor markets," researchers found. "Workers either are fired or quit their jobs only to join the overcrowded pool of workers vying for positions in traditional immigrant occupations."

The study found that 34 percent of the workers who were fired after receiving a no-match letter were never granted an opportunity to correct the error by their employer. With the government threatening to step up enforcement, including more raids, in conjunction with the new rule, small business owners are more likely than ever to simply fire workers. Thus, many fear a looming witch hunt.

At this point, nothing short of congressional action can stop the rule's implementation. Chertoff estimates that the SSA will send out 15,000 letters a week in the eight to ten weeks following the rule's effective date, Sept. 15. That alone is expected to produce a bureaucratic nightmare. The SSA has the fewest staff since the early 1970s, and field offices are already facing significant increases in walk-in traffic and phone calls, according to the National Council of Social Security Management, the umbrella organization representing the SSA's ten regional field office and teleservice center management associations.

In the end, however, the rule does nothing to advance comprehensive immigration reform. All it does is ramp up the stakes in this endless cat-and-mouse game.