E-verify: An Economic Burden to Businesses and State Budgets

A new resource from our friends at the National Immigration Law Center emphasizes the costs to both businesses and local governments of trying to enforce immigration law in the workplace.  As they note, the E-verify system - the electronic program that is currently voluntary for employers to use in comparing workers’ documents for employment eligibility against federal databases from the Department of Homeland Security and the Social Security Administration - imposes a range of costs:

• Costly Database Errors: The Social Security Administration estimated that its own database errors alone could result in 3.6 million workers a year being misidentified as not authorized for employment - costly mistakes that could slow hiring throughout the economy.  E-verify leaves workers who are in the system at great risk of having their identity mistaken (Intel found that almost 13% of the workers they ran through E-verify in 2008 were falsely flagged as being unauthorized) or even worse, stolen, since Department of Homeland Security databases were given a D for security measures by the US House Oversight Committee.
• High Business Costs: The Chamber of Commerce concluded that the net societal costs of implementing E-verify just for federal government contractors alone would be $10 billion a year, to say nothing of all employers.  Corporations that have tried to implement E-Verify have found it to be extremely faulty and the process uneven and counter-intuitive, which is why 99% of businesses have declined to participate. And small businesses, which have fewer resources, face even greater burdens in implementing the changes.  This doesn’t factor in the costs of potential litigation for employers who improperly use the system to discriminate against workers, including preemployment screening, adverse action based on tentative nonconfirmation notices, and failure to inform workers of their rights under the program. 
• Encouraging Expansion of Underground Economy:  Furthermore, it is not even guaranteed that E-verify would accomplish its purpose of preventing employers from hiring undocumented immigrants. A study by the Congressional Budget Office of the SAVE Act, which was proposed by the last Congress, found that mandatory implementation of E-verify would lead more companies to bypass the unwieldy system and enter the underground economy, costing more than $17.3 billion over ten years of unpaid Social Security taxes.  The CBO also found that in a single year, implementing the bill would cost private-sector employers $136 million and state and local governments $68 million to comply with the employment verification requirements.
• Creating Costly Litigation: For states, implementing E-verify could be a hasty move that would be pre-empted by federal legislation, and could result in unnecessary and costly litigation. For example, the cost to the city of Hazleton, Pennsylvania for defending its ordinance has already totaled more than $200,000, and the potential plaintiffs’ legal fees could be as high as $2.4 million.

Fortunately, E-verify provisions were stripped out of the recent stimulus bill. However, states like Nebraska, Indiana, and Rhode Island that are looking at adopting legislation to mandate E-verify for government contractors or all employers would do well to carefully consider all of the substantial costs of implementation in a year where budgets for essential services like health care and education are being slashed to the bone.

Better yet, to address the underlying causes of the underground economy, legislators in those states should introduce wage enforcement legislation to hold unscrupulous employers accountable for meeting existing wage and hour laws, and ensure that they are paying their workers’ salaries, as well as state taxes in an accurate manner.  Iowa , New Mexico , and North Carolina are among the states that are looking to raise the labor standards for all workers, immigrant and US born alike.

Resources

National Immigration Law Center -- Basic Pilot/E-verify
Iowa SF 157 -- Model legislation on wage enforcement