Saturday, June 9, 2007

Lack of data on illegal workers skews U.S. economic picture

Washington — In this country, at least, the sounds of power hammers and Spanish banter are inseparable.

That's because Hispanic immigrants, legal and illegal, make up such a huge chunk of the U.S. construction work force. They've become a vital but elusive cog in the U.S. economy.

And therein lies the dilemma for economists: Everyone knows they're there, and yet they can't be adequately counted or tracked. As the U.S. economic behemoth slows, we're getting a disturbingly fuzzy snapshot of what's happening because the industry most responsible is producing some quirky data.

Housing starts and sales have plunged in the past nine months. Under normal conditions, you would expect massive layoffs and a surge in the jobless rate. Instead, the U.S. labour market seems pretty healthy for an economy that is flirting with no growth (0.6 per cent annualized in the first quarter). The jobless rate is at 4.5 per cent, its lowest level in six years, and the economy continues to create jobs (157,000 in May alone).

It's a puzzle that Ben Bernanke and his colleagues on the Federal Reserve Board acknowledged in the minutes of their May 9 meeting.

You would barely know there was a recession in construction. Even while housing starts have tumbled by more than a third, the number of jobs was stagnant in May, and down an average of just 3,000 per month this year.

Economist Maury Harris of UBS Securities in New York warned in a report yesterday that investors need to be mindful that the jobs numbers are suspect. Undercounting of illegal Hispanic workers offers a credible hypothesis for what he called "one of this year's most intriguing economic puzzles."

Some of these illegal workers may have moved into commercial construction. Some have simply vanished from the ledger, uncounted by either the household survey or the survey of employers because - technically - so many were never there.

The result, Mr. Harris suggested, is that the U.S. economy could prove to be even weaker than it looks. Unemployment may be higher and job losses more sizable if illegals aren't being picked up in the U.S. Labour Department's household survey.

"With potential measurement problems possibly clouding the meaning of labour market data, spending data - especially by households - should become relatively more important," he concluded.

If these workers don't have jobs, they don't get paid, and they and their families can't spend.

Enormous as it is, the hidden work force may have been badly undercounted as the economy boomed, and now too as it cools. The Pew Hispanic Center has estimated that foreign-born Hispanics - legal and illegal - accounted for half the increase in total U.S. employment between 2000 and 2006. Two-thirds of all Latinos who joined the work force in recent years may be here illegally. All told, there are some 11 million to 12 million illegal immigrants in the United States - men, women and children.

Now, there is some evidence already that many of them are already returning to their home countries - and many others are not making the dangerous trip north to work, because the work has vanished.

This all matters, of course, to more than just a picture of where the economy is headed. The U.S. Congress is wrestling - once again - with an immigration reform package that George W. Bush has vowed will bring 12 million people out of the shadows.

The debate is emotionally and politically charged. But it's also a debate about economics and fairness. And, like it or not, the massive and highly mobile Hispanic work force has become an integral part of the U.S. economy.

Critics complain that illegal immigrants are a drain on government expenditures and create a downward spiral in low-skilled wages.

Most credible evidence suggests that isn't so. Millions of them work, pay their payroll taxes, pay local taxes through rents or property taxes, and contribute massively to the economy by spending their money on taxed consumer goods and services.

And because they are illegal, many of them will never collect the fruits of their labour - social security and Medicare when they retire.

In the meantime, this vast and flexible labour pool has helped make the U.S. economy a powerhouse.

Americans owe it to themselves to acknowledge reality and bring their illegal population into the light of day.