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Why business should worry about the battle over immigration reform.
Don Durfee, CFO Magazine
March 15, 2006
Several years ago, managers at heavy industrial manufacturer Ingersoll-Rand Co. were looking to hire 60 welders to help build heavy drilling machines in Texas. What they got was a lesson in immigration law. Human-resource managers at the Bermuda-headquartered company scouted the United States for workers, even looking into shipyards to see if they could lure anyone away. But welders aren't as plentiful as they once were. The Army-trained welders of the baby-boom generation are starting to retire and few are taking their place. Apparently, lethal electric currents, high temperatures, and toxic gases just aren't the career draws they used to be.
After several months of intense recruitment, Ingersoll-Rand's search yielded only a handful of U.S. workers. The company did find one ready source of skilled welders; unfortunately, those welders all lived south of the Rio Grande. The welders in Mexico didn't qualify for the small number of visas the government reserves for seasonal laborers. They also lacked college degrees, which meant they were not eligible for the H1-B visas that supply Silicon Valley with its legions of Asian and Russian programmers.
Ultimately, Ingersoll-Rand was forced to go with a smaller team to complete the project. Not surprisingly, the company missed its customer's initial delivery deadline. Says Elizabeth Dickson, Ingersoll-Rand's adviser for immigration services: "There's no legal way for us to bring in workers who don't have a college education, even those who work for us in other countries."
Ingersoll-Rand's managers are not alone in their frustration. A growing number of American employers say that, when it comes to hiring, they're boxed in: they can't find the workers they need in the States and, because of immigration laws, they can't hire enough workers from overseas. The health-care industry, for example, faces a dire shortage of nurses. In response, companies such as Harborside Healthcare, a Boston-based nursing-home operator, are recruiting from abroad. But without an increase in visa quotas, this safety valve won't be enough to prevent a crisis. "Over the next 10 to 15 years, the nurse shortage is one of the single greatest concerns we have," says Harborside CFO Bill Stephan. "If we're going to care for the elderly going forward, at least one part of the answer will have to be a greater flow of immigrants."
The need for foreign-born workers — both legal and otherwise — is creating new, unforeseen headaches for employers. Companies often wait years to get much-needed worker visas, when they can get them at all. Business managers say they are inundated with fraudulent work papers, putting them on the wrong side of the law and, increasingly, the receiving end of class-action lawsuits. What's more, the government has provided no easy — or foolproof — way to know whether potential hires are actually in the country legally.
As a result, many companies — Ingersoll-Rand included — are pushing for a complete overhaul of the nation's immigration system. "This system is very, very broken," says Laura Reiff, a partner with Greenberg Traurig LLP, in Washington, D.C., and co-chair of the Essential Worker Immigration Coalition (EWIC), a business-backed organization. "We need a comprehensive reform bill that will deal with the real economic demand for immigrant labor."
Be Careful What You Wish For
Currently, Congress is debating a number of wide-ranging immigration reforms. Several of the proposals are sympathetic to business concerns. Some include provisions that create "guest worker" programs. One establishes amnesty plans for the nation of illegal immigrants already in the country — now estimated at 11 million people.
A cadre of special-interest groups, though, are lobbying hard for legislation that would staunch the flow of the 500,000 or so undocumented immigrants that make their way into the country each year. The AFL-CIO favors amnesty but opposes the guest-worker program. National-security hawks want harsher laws and stricter workplace enforcement. So do anti-immigration groups such as the Federation for American Immigration Reform (FAIR), which advocates, among other things, the construction of a barrier along the entire U.S.-Mexico border. Says Mark Krikorian, executive director of the Center for Immigration Studies, a Washington, D.C.-based think tank that advocates more-restrictive immigration policies, "Change is clearly coming."
Whether this change is good for business remains to be seen. In December, the U.S. House of Representatives passed the Border Protection, Antiterrorism and Illegal Immigration Control Act of 2005 (HR 4437). The legislation, as its name suggests, is heavy on enforcement and light on most everything else. The law provides funds to build 700 miles of wall along the U.S.-Mexico border (assuming, of course, they can find enough masons to do the job). The proposal also would make illegal immigration a felony rather than a civil offense and would stiffen penalties for companies that hire undocumented workers. If caught, businesses could face high fines and possible criminal charges.
That sort of draconian approach would likely spark strong opposition from business leaders. Notes Harborside's Stephan: "It's not realistic to assume that employers can act as tiny detective agencies, screening people on behalf of the government."
It would be a huge departure from the current setup, that's for sure. While the existing law (the Immigration Reform and Control Act of 1986) made it illegal to hire undocumented workers, it also established the I-9 process. That system, which requires employers to verify the employment eligibility of all new hires by checking documents such as visas and driver's licenses, goes easy on businesses. If a worker's documents look valid, an employer must accept them — that, or risk a discrimination lawsuit. It's the corporate version of "Don't ask, don't tell."
The loophole is one of the reasons businesses have been able to hire so many undocumented workers of late. But HR 4437, sponsored by Rep. F. James Sensenbrenner Jr. (R-Wis.), would put an end to that practice. It would also increase enforcement, which has all but stopped due to the government's post-9/11 focus on finding terrorists. The numbers tell the tale: in 1999, 417 companies were fined for hiring illegal workers; in 2004, only 3 received penalties.
Not surprisingly, groups ranging from the U.S. Chamber of Commerce to the Service Employees International Union and the U.S. Conference of Catholic Bishops adamantly oppose HR 4437, calling it "an unworkable enforcement bill." Ingersoll-Rand's Dickson (who also chairs the Chamber of Commerce's subcommittee on immigration) says the employer penalties proposed in the legislation are particularly egregious, given how hard it is to detect fraudulent documents.
Dickson cites the example of a forged New Jersey driver's license an immigration official showed her recently. "It was beautifully manufactured — I would never have been able to tell," she says. "And now they're talking about $25,000 fines and criminal penalties. Who's going to want to take responsibility for filing an I-9 if you're criminally liable?"
Where'd Everybody Go?
A Senate bill sponsored by John McCain (R-Ariz.) and Edward Kennedy (D-Mass.) takes a less punitive approach to fraudulent documents. The bill, which appears to have some backing in the Senate, would mandate the use of tamper-resistant visas that could be swiped like a credit card to verify employment eligibility.
CFOs at businesses with a high percentage of foreign-born workers will no doubt be intrigued by the idea of tamper-resistant visas. Steven Names, CFO of Sendik's Food Market, a grocery-store chain in Wisconsin that employs Latin American immigrants, says he is in favor of digitized documentation. "I would be fine with an electronic system," he notes, "assuming it would absolve me of liability by using it."
But some legislators want to go further. They want to mandate the use of an electronic system to check the Social Security numbers of new hires — and, eventually, all current employees. The result, of course, is that many businesses would lose part of their workforce. Without a supply of ready replacements, companies would have to pay more to attract laborers. "It would raise costs," predicts a CFO at a Florida-based agricultural company. "That would make it more difficult for us to compete in the global market."
The electronic setup would be an expansion of a pilot project being run by Immigration and Customs Enforcement (ICE), the successor agency to the Immigration and Naturalization Service (INS). That tool allows employers to submit Social Security numbers online and check them against a database.
To date, only 4,000 companies have signed on to use the system. Critics claim the electronic database is fraught with errors. And the EWIC's Reiff argues that it doesn't get at the problem of fraudulent documents, "since you can use a dead person's or a child's Social Security card, or buy a Social Security number." And, in fact, businesses have reported cases where legitimate employees have been flagged as illegal.
Bugs notwithstanding, Krikorian predicts the government will adopt an electronic ID system sooner or later. "It's in the interest of employers to enroll [in the pilot program] now and get used to it," advises Krikorian. "It's going to be rammed down their throats at some point."
Hire and Hope
Perhaps. Until then, many employers will continue to hire foreign-born workers and hope they're legal. Experts believe that undocumented employees now make up fully 5 percent of the U.S. workforce. In some labor-intensive industries, the use of undocumented workers is much higher. The Pew Hispanic Center estimates, for example, that undocumented workers now make up 13 percent of the workforce in the hotel industry.
Some employers may feel they have little choice but to turn a blind eye to the hiring of undocumented workers. Many are already reporting difficulties in finding homegrown workers, particularly businesses in the Midwest. The shortages are going to get worse, too. According to the Bureau of Labor Statistics, 76 million people will exit the workforce over the next 25 years, leaving yawning employment gaps across a range of sectors.
Doris Ruiz, the owner of Olen Staff Co., a Minneapolis staffing firm that supplies the region's businesses with mostly immigrant workers, sees strong demand from employers. "I keep hearing the same thing from companies in towns where the labor pool is shrinking or nonexistent," she says. "They say, 'We're losing business. We don't have the hands to go after those contracts.'"
The problem isn't limited to unskilled labor, either. Harborside Healthcare's response to the nursing shortage has been to recruit nurses in the Philippines and bring them to the United States, a slow and costly proposition. The company has also set up special training facilities to help ease assimilation (see "Coming to America" at the end of this article). "As the raw number of elderly outstrips our capacity, we can always put up a new building," says CFO Stephan. "But you can't create new health-care professionals overnight."
Visa quotas — currently capped at 50,000 per year for H1-Bs — are creating difficulties for many sectors. Science and technology companies have been particularly hard hit. Specialty raw materials producer Technology Crops International, for example, tried in December to hire an agricultural expert from Europe to start a new division. CFO Mike Wainscott says the job required expertise that's hard to find in the United States. The company was informed that the visa quota had been filled and it wouldn't be able to acquire a visa until October or November at the earliest. "Now we'll have to do something else," says Wainscott. "It's restricting our ability to grow."
One ray of hope: the McCain-Kennedy proposal creates a new type of visa. Dubbed the H5-A, the guest-worker card would allow new classes of workers (such as welders) to stay in the country for up to six years with their families. Not surprisingly, the provision has drawn fierce criticism from anti-immigration groups. But the idea has received a surprising amount of bipartisan support in Congress. "The bottom line is we're going to have a need for foreign workers in the foreseeable future," Rep. Jeff Flake (R-Ariz.) stated in an interview. "We can make it legal through some mechanism or we can keep it illegal and keep on pretending we are going to enforce it."
The new visas would be a godsend for businesses like Metal Forming and Coining Corp., an auto-parts supplier in Maumee, Ohio. Finance chief Kurt Geisheimer says the company is expanding its plant in Detroit and would benefit from being able to bring in skilled workers from Canada as needed. "A guest-worker program would be a great thing," says Geisheimer. "Companies like ours have outgrown political boundaries. I think many in Congress fail to realize that."
Here Come the Lawyers
As of press time, it was unclear what sort of immigration reform — if any — will be endorsed by Congress. For her part, Reiff is optimistic. "This is the best opportunity I've seen for comprehensive immigration reform since 9/11," she says, citing the support of key Republicans and Democrats, the business community, religious organizations, and part of the labor movement. "The moon and stars seem to be aligning."
If they don't, businesses may soon face pressure from another, more familiar, quarter. Class-action litigators are beginning to hound companies that hire undocumented workers. One lawyer, Howard Foster of Chicago firm Johnson & Bell Ltd., has already filed lawsuits against several businesses, including Zirkle Fruit Co., Mohawk Industries Inc., and Tyson Foods Inc. The suits allege that the companies violated the Racketeer Influenced and Corrupt Organizations Act (RICO) by conspiring to drive down wages through the hiring of illegal immigrants. In a watershed decision that observers say may unleash a torrent of suits, Zirkle Fruit recently agreed to settle its case for $1.3 million. "Hiring of illegal immigrants is extremely pervasive in industries that use low-wage labor," says Foster. "And it's being done knowingly."
The use of the RICO statute to combat illegal immigration is controversial, however, and the U.S. Supreme Court has agreed to hear the Mohawk case. In the meantime, corporate executives will continue to struggle to meet their workforce needs — both legally and otherwise. Ingersoll-Rand, still coping with a shortage of welders, has established relationships with local community colleges and occupational schools to recruit graduates.
"I don't think many people in Washington really understand how the global economy works," laments Dickson. "Half of our company's manufacturing plants are in the United States. But how do you keep manufacturing here if you can't find the people you need?"
Don Durfee is research editor of CFO.
Coming to America
Foreign-born workers now make up nearly 15 percent of the U.S. workforce and 20 percent of workers in low-paying jobs.
Politicians in Washington, D.C., may be sparring over the merits of foreign-born labor, but managers at many U.S. companies are learning to cope with an increasingly multicultural workforce.
Take the case of nursing-home operator Harborside Healthcare. The company, which operates 45 facilities around the country, employs immigrants from the Caribbean, Latin America, Africa, and Asia. Lately, a dwindling pool of American-trained nurses has led the company to recruit heavily in the Philippines. Harborside officials say Filipino nurses are desirable hires because they speak good English and they hold bachelor's degrees.
Among the obstacles: orienting the foreign workers to life in America and training them to meet U.S. medical standards. To deal with those challenges, Harborside has equipped three of its nursing homes as training centers. Managers at the centers arrange the more mundane aspects of relocation: for example, registering for Social Security, setting up bank accounts, and enrolling children in school. In addition, Janelle Fairbrother, Harborside's vice president of human resources, says it's important to educate U.S.-born staff about potential cultural differences. She cites examples where cultural traditions have prevented male nursing assistants from providing certain types of care to female patients. "You need to make sure the local facility understands that the nursing assistant isn't being insubordinate when he refuses to provide care," says Fairbrother.
Harborside's story is hardly unique. Foreign-born workers now make up nearly 15 percent of the U.S. workforce and 20 percent of workers in low-paying jobs. For many of their employers, English-language skills — or the lack of them — pose the biggest concern. Often, solving the problem is a simple matter of translating signs and company documents. It's a harder fix when immigrant employees have direct contact with customers, a common occurrence in the fast-food and accommodations industries.
At Carlson Hotels Worldwide, a hotel franchisor whose brands include Radisson and Regent International, immigrant workers are rewarded for improving their language skills. According to Carlson human-resources vice president Robert Fox, the company wants to offer promotion opportunities to many of its recent immigrant workers. "Often the housekeepers or laundry staff don't speak English," says Fox. "We're very much OK with that. But for these workers to move up, they need better language skills." The company offers self-study training for non-English speakers. It has even started experimenting with a portable electronic game called Sed de Saber ("Thirst for Knowledge"). "When you have someone with a great personality who hasn't missed a day of work, you know they'd be great at the front desk," says Fox. "But you need to have someone who knows English." — D.D.
Drain or Gain?
When Mark Krikorian hears business executives pleading for more-lenient immigration laws, he gets worked up. Krikorian, the executive director of the Center for Immigration Studies, a Washington, D.C.-based think tank, believes the requests are self-serving — and disingenuous. Corporate calls for more immigration, he says, "are really just demands for a subsidy from the federal government."
Krikorian, whose group wants more limits on immigration, dismisses the argument that tightening labor markets force businesses to hire foreign-born talent. If companies paid better salaries, he claims, they would attract plenty of homegrown talent. He also believes employers can use technology to automate some jobs out of existence. As proof, Krikorian cites Congress's 1964 decision to end the guest-worker program for Mexican farm laborers. At the time, Californian tomato farmers protested vigorously, claiming that the industry would grind to a halt without the immigrant workers. But rather than go out of business, the growers took a different approach: they invested in harvesters. The production of tomatoes quadrupled and the postinflation price fell. "Massive immigration," says Krikorian, "removes the incentives to replace labor with capital."
Bill Stephan, CFO of Harborside Healthcare, agrees — to an extent. To cope with a nursing shortage, he is looking more closely at ways to use technology to automate the paper shuffling that occupies much of nurses' time today. "This will make them more productive," he says. "But by itself it's not the answer. We need a flow of young people from abroad who are willing to study and take these jobs."
Likewise, Elizabeth Dickson, immigration-services adviser for industrial-equipment maker Ingersoll-Rand, believes that automation gets you only so far. "Over the last 10 years especially, we have tweaked and automated as much as possible," she notes. "But in the end, you still need people on the assembly line. You need welders to glue things together, and you need machinists."
And while economic studies show that increased immigration does lead to reduced wages in certain sectors — textiles, for one — the overall impact is quite different. Immigration has risen over the past 20 years, yet unemployment has declined and median real family income has risen. Part of the reason: many native workers have moved to higher-wage professions. But economists point out that immigrant workers boost local economies, too, both as consumers and entrepreneurs.
In fact, a 1997 study by the National Academy of Sciences found that immigrants may contribute as much as $10 billion to the U.S. economy each year. And that figure doesn't include the billions of dollars that immigrants (both documented and undocumented) pay into the Social Security fund — money many are not likely to ever get back. — D.D.