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Neil Harl on the Economic Impact of Immigration

posted on April 19, 2007

An extended interview with noted Iowa State University economist Neil Harl discusses the economic impact of immigration.

Q. What was the economic impact of the December Swift radis?

HARL: Well, I think it was a short run impact, destructive type impact, the flow of hogs in the plant was slowed and it was clear that there was disruption within the organization for a while. And certainly there was massive disruption for those who were arrested, taken away, shipped somewhere else. So, I would say it was one of those very disruptive things that the government sometimes pulls off but it was unfortunate because in my view it really represented failed policy that it was sad that we came to the point where we had to deal with it in such a manner as that. It's been argued for years and years and years and the problem is there are gainers and there are losers from every proposal. And so politically it's been exceedingly difficult, even within a party it's been exceedingly difficult to reach an agreement on what should be done. There is a spectrum all the way from do nothing to wall the country off and none of those extreme positions are likely to be very successful in my view.

Q. What’s the middle ground?

HARL: But even the middle ground is fraught with land mines in terms of arguments that can be made and these are arguments that mean a great deal to a lot of people, they are concerned about the country, the integrity of the country. But on the other hand we have moved a very long way toward being a globalized society and Iowa is very much a part of that. And by globalized society I mean interaction with the rest of the world through trade and through capital flows to the point where we can not realistically wall ourselves off from the rest of the world. That, I think, is quite clear.

Q. You feel this is just a natural evolution of economic globalization?

HARL: The globalization movement has really involved two basic factors one of which relates to the immigration issue. On the one hand what we have is an outsourcing of manufacturing, outsourcing of services, anything that is mobile has a tendency to move to the place in the world where the cost of doing that step in the process is the cheapest. And so we see even medical procedures going to India, for example. There are clinics in India that are able to do knee replacements, hip replacements, a lot of surgical procedures at a lower cost. And so since people are mobile they go to where they can obtain that kind of a service at a lower cost.

And, of course, we know what has happened in textiles, in the assembly of electronic gear and so on. Well, this is driven heavily by ourselves because we have in our society something we call consumer sovereignty, the consumer is king, the consumer makes decisions and everybody likes a deal. They'll go across town for the cheaper cost for the same item or the same quality item. And suppliers know that, retailers know that, wholesalers know that. So, they will move heaven and earth to try to get to the lowest possible cost point on the globe to produce products. And that's why we see a lot of products produced in China and Bangladesh, throughout the Pacific Rim. There is a cue here and it's a very long queue and the countries with the lowest cost labor are the ones that can dethrone people ahead of them.

And so we've seen that happen over the last several decades. Well, what about those situations where the product is not mobile? And that's the case with slaughtering livestock, it's the case of cleaning hotel rooms, it's the case with working on a landscape project, lawn care project, anything of that general nature where it's very localized, you can't outsource it. So, the same pressures are there to bring people in at a lower cost. And if you go back 30 years the meat packing industry had very few non-resident aliens, very few resident aliens, they were mostly U.S. citizens and there was a higher wage rate. But over a period of some time the meat packing companies managed to make a shift.

And the policy was such that although we didn't really favor the movement of people from Mexico and Nicaragua, excuse me, for those countries with lower cost labor the problem was that the companies were able to obtain those workers in a I suppose you'd call it a semi-clandestine fashion. And so it built up to the point where it was very visible. Well, when immigration became the big issue this was a very difficult situation for the federal agencies that oversee this.

But the same factors that produce the outsourcing are also producing the pressure to use lower cost labor. And that is the fact that we as consumers will pay the least that we have to to get something done and whether that is staying in a hotel or getting our lawn taken care of or whether it's slaughtering livestock. Now, you might say well livestock are mobile, you could move livestock off shore. But livestock are pretty closely tethered to the cost of feed grains. So, only at the margin are you likely to see a big out movement. Now, we are seeing some things happening in the livestock industry that are very interesting.

Q. Some say ethanol may be causing a shift in livestock production?

HARL: A tremendous increase in hog production in Romania, in Poland, in areas of the eastern European area where they have access to some feed grains from Ukraine and from places like northern Serbia. Northern Serbia is a lot like Iowa in many ways in terms of their productivity. So, there may be over the next several years a greater amount of outsourcing of livestock slaughter because the livestock may come to be produced off shore. But this is tied in with another major issue and that is what's going to happen to the price of corn, is the price of corn for ethanol driven heavily by ethanol going to mean that there is less reason to keep livestock production in Iowa. So, we're dealing with a shuffling of the economic deck here that we haven't seen in a very, very long time, perhaps the greatest since the settlement of this part of the country 150 years ago or thereabout.

And that means that the policies can have a great deal to do with what happens here in this part of the world. Now, the obvious question is well it's easy to talk about the problem. I think almost everyone can see the problem...

Q. Some see the answer in stronger borders, do you?

HARL: I do not believe that it is a reasonable solution to build a wall. I just don't think that's the way to proceed. I think what we need to do is get ahead of the wave. We've been playing catch up, we've been playing a defensive game here trying to limit movement, trying to screen so that mischief makers don't make it in along with all those who are honestly seeking employment. So, our challenge really in my view is to try to set up a system that will do the screening, that will separate those who come for a genuinely better life rather than those who come to try to cause difficulties, cause problems.

If that could be done, and I think it can be if we put our mind to it, I think it means that we really need to be engaging in a screening system off shore, outside of the country and setting up a different kind of a guest worker program that will run from one to five years and with incentives. Once we screen and screen for people there who have good records, are not felons, seem to have the will to work, to settle down and to raise families and become part of our culture, part of our society then I think provide them with incentives to move through a process so they can become citizens.

This country was basically made up of immigrants. This state you can see even yet the remnants of those societies from the German ancestry, Dutch ancestry, the Norwegians, the Swedes and so on. So, we are very much a melting pot society and I think what we need to do is to set up a system whereby people can move through a process, qualify themselves for citizenship and do so in a fairly orderly way without the disruptive kinds of things that happened in Marshalltown this past year. I think it's unbecoming a mature country to have to do something like that.

Q. So the solution lies in …

HARL: So, we're going to have to bury some hatchets here. We're going to have to look for a middle ground that will work because we're too far along to throw up our hands and say we're going to lock the borders and turn everyone away and we see that politically because there are people who have too much stake in the low income labor in their business, in their operations. So, and consumers seem to want that too. They may not speak it loudly but they speak by their feet when they move from opportunity A to opportunity B to acquire something. They're going to pay the lower cost for it and that just fuels this entire system.

So, I think what we need to do is get out in front of the problem and begin doing screening off shore, set up a system that will provide incentives for the individuals to come to the United States, become good workers, put down roots, become part of their communities and I think that probably long-term will result in a lot less disruption. Now, the economics of this are interesting because the people who are hiring these low cost laborers obviously are gaining something compared to paying what they'd have to pay to get a U.S. citizen to do the same work.

Q. How does the U.S. get ahead of the curve?

HARL: I think that has got to change in the sense that we can not allow employers to hire undocumented, illegal individuals and have a viable system. We've got to make it, in my view, illegal to hire someone who has not been through the process, who just gets across the border and gets to Marshalltown, Iowa and gets hired. And the only way you're going to show off that demand factor is to make it a criminal matter, to hire people who are not proved for entry into the country but at the same time provide a stream of screened individuals to fill those jobs. So, it means we're going to have to have a partnership, if you will, involving government, involving industry and involving consumers and consumer groups all coming together realizing that they're all gaining from the presence of those who come into the country from countries with a history of low wage jobs and a solution is going to have to change the opportunity that people have and the incentive they have to come across the border illegally, get a job and hope no one finds out about it until they have gained enough standing so they aren't shipped off to Georgia or shipped off someplace else. But that is, it's also a very unfortunate way to introduce entrance into this country, to our society where they come in, in a clandestine fashion. They live under the cloud that some day, the uncertainty that some day somebody may blow the whistle and they have to live a life of trying to skirt law and order.

And that is not exactly the message that we want new people coming into the country to have. So, I think we have to change our thinking but at the same time create some incentives for people to do the right thing and screen for people who have a history of wanting to better their condition.

Q. Under your scenario we kind of need to recognize the reality of the world economy that resources flow and that immigration quotas are artificial barriers and are not always effective?

HARL: I think we simply have to recognize that those quotas are greatly inadequate and when you have a quota like that you create incentive to go around the quota and that is why we spend so much money patrolling the border. People are trying to get in so let's recognize that we need workers in this country. We need them in agriculture in California and Arizona and Florida and elsewhere. We need them almost everywhere in low wage jobs unless we're going to pay the price to hire U.S. workers. I think we're probably past that point. I think 20 or 30 years ago that might have been a more viable solution but I don't think it really is today. So, we have to realize that the quota side is going to have to be relaxed to allow the workers to come in legitimately and then we get ahead of the game in terms of screening for those we want to come in knowing what our job market is, knowing where the demand is and so when someone comes into the country they already have some assurance of employment and know perhaps even where they're going so that -- someone might say well that's very expensive, how can we do that. Well, it's not that expensive and building a fence for 750 miles or more is not cheap as the Congress has now discovered when they started putting the money together for it.

Q. What would be a more effective approach?

HARL: In the years when I was working in the eastern European area we used the screening approach to select students. We couldn't go over there and talk to every candidate so we had a federal agency that was working abroad screening the individuals and it worked very nicely for us. They found out about their language capabilities, their background, sent all that to us. We made the decision on admission into our schools but it's clear that you need some kind of a mechanism like that. And I think to some degree that the cost of such a screening program really should be born directly or indirectly by the employers that are going to benefit and build it into their cost of doing business. But I think some federal money probably should be in it as well. But I really think that's the direction we really should be going.

Q. To get ahead of the curve?

HARL: Yeah, to get ahead of the curve otherwise we're going to be dealing with an untidy, disruptive, unfair system for as far as I can see in the future unless we set up a procedure whereby we can fulfill the demands for the labor here and do it in a cost effective and in a fair and equitable manner. It also sends the message in countries like Mexico that if you're a bad person, if you have a bad record that's not going to help you get out of that situation into the United States, that we're going to be looking very closely to see what you have amassed in the way of a record where you are and are you a dependable person who would make a good worker in the United States.

Q. There seems to be plenty of folks who are finding their way here of that genre anyway. We talked about Storm Lake which over the last few decades has really become a genuine sister city to Mexico. Their experience there is not unlike Iowans who have relatives in Arizona and California. Is Storm Lake somewhat like what you think communities would start to look like under this scenario?

HARL: I think that as long as we have a grouping of jobs in communities like Columbus Junction, Storm Lake, other places, Perry we're going to have a different cultural mix and this is unsettling to some who see a fairly homogeneous culture in Iowa prior to the advent of this type of employment. And I think this creates costs locally or has in the past that the cities don't necessarily want to bear, the communities don't want to bear. Now, I recall a few years ago when there was a proposal to build a new packing plant in Iowa, Iowa Falls said no, Cambridge, Iowa said no, even Ottumwa a long standing meat packing town said no because of what we call the cost externalities, the cost for education, the burden on the healthcare system, on various social services particularly where you don't have a screening kind of a system to screen out those who tend to come and cause problems.

Q. The concerns of those small communities is the cost of adapting to a population influx, do you advocate assistance for them?

HARL: So, there is probably always going to be some additional costs and that's why I think you have to spread those costs. If this is advantageous for society, advantageous for Iowa then we need to spread those costs beyond those communities. They shouldn't be expected to bear all those costs. The benefits heavily go to the consumers of the products that go through those systems, the meat that goes through a plant in Storm Lake and through Columbus Junction and Perry and so on. So, that's why we need to have some payback there so that those who benefit so much from a lower cost way of doing something pick up some of the externalities as well, some external costs.

But it's also going to mean probably more diversity in Iowa's culture. It already has led to that and it probably will for quite some time and in many ways that enriches Iowa as a place to live and work. We have Bosnians in some areas, we've got other ethnic groups and to maintain some of that identity is I think a very positive matter. But it also causes some friction occasionally and we have to deal with that.

Q. Are there things that the state can do to alleviate these impacts?

HARL: Well, I think that one of the big ones is to provide more resources educationally so that the transition from Central Mexico or Northern Mexico into a community like Storm Lake can be pulled off more easily. And a lot of this is language but it goes beyond that, other areas of education as well. So, if there was one thing that I think we should do more on it's to provide more educational opportunities, not just in language but in supportive areas as well.

Q. Iowa had a very positive experience from the number of Asians they took in, in the 70's. Are there things we can learn from that?

HARL: Well, I think we can. That was handled I think very well. There was a lot of planning that went into moving those people in, a great deal of effort in providing employment, helping them to get employment and it hardly caused a ripple in many areas, very successful. I think that's a template, a good example that we can look back to in terms of the kinds of things we can do and should be doing to make that employment experience more satisfactory for the individuals coming as well as for the community that is receiving them as well.

Q. A generation later ... a there are a lot of Asians names at the top of high school class rolls ...

HARL: Oh yes, oh yes. That group had a fairly high index of achievement and they were achievers in many ways and I've noticed that in many graduating classes that those with Asian backgrounds had come with such ambition and drive and ability because many of them had fairly good basic background anyway. So, they have capitalized on their opportunities and this is not just in the high school level, it's also happening at the university level as well, I've noticed it in some of the better, bigger universities around the country that they have done well. And this is what we need to foster is to encourage that and it means that we as a state can provide a better foundation, a better platform educationally for them so they can be launched perhaps a little bit better.

Unfortunately some of our immigrants come from areas of the globe where there has not been the appreciation for education and for striving. But I think it's almost universal once the opportunities are there.

Q. It would seem from the material that I've read the economic impact is not very great on the broad population, is that your perception?

HARL: It tends to be on a micro basis. You really see the impact locally. What evidence there is tends to indicate that on balance they do contribute to society and they do pay taxes. They are a positive force but the pluses and the minuses look a little more stark at the local level than they do generally speaking. I don't see the numbers declining for quite a while. Globalization is going to lead to higher incomes around the globe especially among third world countries and lower income countries. One of the real challenges for developed countries like the United States is how to maintain a premium standard of living in the face of totally free trade, totally free capital movement and where technology is equally available everywhere.

If we're successful it will be because we're not really competing on a labor basis with the low income peoples of the world, that we have to elevate and maintain the premium standard of living by getting ourselves up to the point where we're competing with a different group of individuals around the world. So, I think that quite clearly we need to focus a lot of attention on our own education as well as providing opportunities for the people who come here to move up as well because we're going to see a continuing emphasis on this business of how to maintain for us a premium standard of living and, of course, as long as we can obtain products cheaper that enhances our standard of living.

So, we're tending to raise all the boats with free trade. It isn't completely equal, it's not completely fair but on balance if your unit of observation is the globe all this is very positive because it's raising incomes, it's bettering people's lives, it's reducing the potential for disharmony which I view as one of the great problems of our age is disharmony in the world. Now, some say well, Harl, you're not going to get very far on this because the people who are not very harmonious are not worried about this life, they're worried about maybe the next life. But I'm not quite so pessimistic as that. I think our focus has got to be on trying to provide opportunity around the world, raise incomes, raise people's levels of living, make it possible for them to do the things they simply have never historically been able to do in that culture. And if we are successful in doing that then I think we're going to see dividends, benefits.

And that's why if you take the globe as your unit of observation all of this is very positive. If you take as your unit of observation a community, an isolated community, take Storm Lake, Iowa then there are more minuses along with the pluses. So, I think it's important from a policy perspective to take the broader view, that we're really launched on a multi-decade process of lifting people out of poverty. The problem is that there are some parts of the world like Central Africa where they're not even able to get in the development cue and that's a separate challenge and one that we need to focus a lot of attention on. But I think for the parts of the world that are positioned to be in the development cue then I think this is their ticket to a much better life.

Q. So, what we've got now is sort of a short-term dislocation that we're trying to deal with and get ahead of the curve?

HARL: That's right, that's right, long-term. It's kind of difficult if you're sitting in the middle of a community that is suffering some disharmony because of the presence of people coming in to see that actually this is part of a broader mosaic of economic progress. But it really is, it's part of a greater effort. We are in the midst of what will probably be viewed historically as the greatest period of lifting people out of poverty that we have seen in a very long time. It's not perfect and it probably could move faster but it's one of the great challenges and it ties in with world hunger and that type of thing. We need to remember that one of our challenges and one of the opportunities of this age is to do something about those problems and this is one of the ways you go about it is through trying to create a better economic opportunity for people.

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