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Originally published Tuesday, September 19, 2006 at 12:00 AM

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Low-paid illegal work force has little impact on prices

More than 7 million illegal immigrants work in the United States. They build houses, pick crops, slaughter cattle, stitch clothes, mow lawns...

Seattle Times business reporter

More than 7 million illegal immigrants work in the United States. They build houses, pick crops, slaughter cattle, stitch clothes, mow lawns, clean hotel rooms, cook restaurant meals and wash the dishes that come back.

You might assume that the plentiful supply of low-wage illegal workers would translate into significantly lower prices for the goods and services they produce. In fact, their impact on consumer prices — call it the "illegal-worker discount" — is surprisingly small.

The bag of Washington state apples you bought last weekend? Probably a few cents cheaper than it otherwise would have been, economists estimate. That steak dinner at a downtown restaurant? Maybe a buck off. Your new house in Subdivision Estates? Hard to say, but perhaps a few thousand dollars less expensive.

The underlying reason, economists say, is that for most goods the labor — whether legal or illegal, native- or foreign-born — represents only a sliver of the retail price.

Consider those apples — Washington's signature contribution to the American food basket.

At a local QFC, Red Delicious apples go for about 99 cents a pound. Of that, only about 7 cents represents the cost of labor, said Tom Schotzko, a recently retired extension economist at Washington State University. The rest represents the grower's other expenses, warehousing and shipping fees, and the retailer's markup.

And that's for one of the most labor-intensive crops in the state: It takes 150 to 190 hours of labor to grow and harvest an acre of apples, Schotzko said, compared to four hours for an acre of potatoes and 1 ½ hours for an acre of wheat.

The labor-intensive nature of many crops is a key reason agriculture continues to rely on illegal workers. A report by Jeffrey Passel, a demographer at the Pew Hispanic Center who has long studied immigration trends, estimates that 247,000 illegal immigrants were employed as "miscellaneous agricultural workers" last year — only 3.4 percent of the nation's 7.2 million illegal workers, according to Pew statistics, but 29 percent of all workers in that job category.

Eliminating illegal farmworkers, by shrinking the pool of available labor, likely would raise wages for those who remain. Philip Martin, a professor of agricultural economics at the University of California, Davis, noted that two years after the old bracero program ended in 1964, the United Farm Workers union won a 40 percent increase for grape harvesters.

A decade ago, two Iowa State University agricultural economists estimated that removing all illegal farmworkers would raise wages for seasonal farmworkers by 30 percent in the first couple of years, and 15 percent in the medium term.

But supermarket prices of summer-fall fruits and vegetables, they concluded, would rise by just 6 percent in the short run — dropping to 3 percent over time, as imports took up some of the slack and some farmers mechanized their operations or shifted out of labor-intensive crops. (Winter-spring produce would be even less affected, they found, because so much already is imported.)

If illegal workers disappeared from the apple harvest and wages for the remaining legal workers rose by 40 percent in response — and that entire wage increase were passed on to the consumer — that still would add less than 3 cents to the retail price of a pound of apples.

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Cluster in construction

Illegal immigrants, like legal ones, tend to concentrate in particular locales and industries, increasing their impact on wages and prices there.

Pew's Passell estimates that more than two-thirds of all illegal immigrants live in just eight states: California leads with nearly a quarter of all illegal immigrants, followed by Texas, Florida, New York, Arizona, Illinois, New Jersey and North Carolina.

Similarly, legal and illegal immigrants tend to cluster in specific industries, among them construction.

Based on census data, Passell estimates that in construction specialties, illegal immigrants range from 20 percent of carpet, floor and tile installers to 28 percent of drywallers to 36 percent of insulation workers. Overall, about 14 percent of all workers in the construction industry are in the United States illegally, he says.

How does all that illegal labor affect the price you pay for a new house?

The National Association of Home Builders pegs labor's share of the cost of a new home at 20 to 25 percent. For a typical U.S. single-family home that sold for $298,412 in 2002, then, about $68,000 went for construction labor. If Passell's estimates are correct, around 14 percent of those workers would be illegal.

But illegal workers generally are less skilled than legal ones, points out Barry Chiswick, an economist at the University of Illinois, Chicago, who has studied illegal immigration for decades. You're more likely to find illegal drywallers or painters, say, than illegal electricians or plumbers.

Since higher-skilled workers earn more than less-skilled ones, Chiswick said, the "illegal share" of construction labor costs — and, by extension, the wages illegal workers receive — will be smaller than their numbers would suggest. But even if illegal workers make only half as much as legal workers, that would work out to about $5,000, or about 1.6 percent of that "typical" home's sale price.

If the supply of illegal workers were cut off, wages for those low-skilled jobs presumably would have to rise enough to attract legal workers into them. If, hypothetically, wage levels rose by a third, that would either add around $1,600 to the cost of the typical house or shave half a percentage point off the builder's 12 percent average profit margin.

"If I'm buying just one home, there's not that big an impact," Chiswick said. "But if I'm building a lot of homes and I can save a few thousand on each one.... "

Even in service-intensive businesses with high incidences of illegal labor, such as hotels and restaurants, customers get only a small benefit.

A Massachusetts Institute of Technology (MIT) study estimated that every 10-percent increase in the proportion of low-skilled immigrants in the labor force lowers the price of immigrant-intensive services — gardening, housekeeping, baby-sitting and dry cleaning — by 1.3 percent, and of other services by 0.2 percent.

Take hotels. Industrywide, more than 44 percent of hotels' expenses are for salaries and benefits (including employee meals), so labor is a major factor.

"We've got a lot of jobs that are tough to fill," said Dan Mount, who teaches hotel management at Penn State. "To find someone who's going to clean 16 guestrooms a day for $6 or $7 an hour — people aren't lining up for those jobs."

Illegal workers help close the gap. According to Pew's Passell, 22 percent of maids and housekeepers (including domestic help) are in the United States illegally.

Similarly, in restaurants an estimated 20 percent of cooks and 23 percent of dishwashers are illegal immigrants.

Jim Harbour, a former restaurant manager who now teaches at Washington State University's School of Hospitality Business Management, estimated that, without illegal immigrants, wages for dishwashers and other "back of the house" staff would have to rise anywhere from 10 to 20 percent to attract the necessary workers.

With labor costs averaging around 30 percent of operating costs, passing on that kind of increase might raise the cost of a meal anywhere from 3 to 6 percent.

Under a similar scenario, Mount said, hotel-room rates would rise, but the increase likely would be measured in dollars rather than tens of dollars.

How much could be passed on to the consumer is another question. On the one hand, Harbour said he's raised menu prices by 10 percent across the board with few customer complaints; and hotels in the Seattle area are fuller now than they were a year ago despite higher room rates.

On the other hand, hotel and restaurant operators' ability to pass on higher wage costs isn't unlimited, said Terry Umbreit, director of the WSU hospitality school. At a certain point, he said, people won't pay any more for a room or a meal; budget hotels and casual-dining restaurants, which compete most on price, likely would reach that point soonest.

Benefits top layers

Of course, the "illegal-immigrant discount" affects different layers of society differently.

The more often you eat out, stay in hotels or get your yard trimmed, the more you benefit from the illegal-immigrant discount.

And by increasing the supply of low-skilled labor relative to high-skilled labor, illegal immigration effectively boosts the purchasing power of the better-educated, more-skilled — and richer — portion of society.

The MIT study, by researcher Patricia Cortes, estimated that the low-skilled immigration wave of the 1990s — much of it outside the bounds of immigration law — raised the "real wages" of college graduates by 0.71 percent, and of high-school graduates and people with some college by 0.59 percent.

High-school dropouts? No discount for them: Cortes estimated that their real wages were cut by 2.66 percent. But since most adult Americans have at least a high-school diploma, Cortes concluded that most people benefited from low-skilled immigration — at least a little.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

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