The Economic Case against Arizona’s Immigration Laws

by Alex Nowrasteh 

Executive Summary

Arizona’s immigration laws have hurt its economy. The 2007 Legal Arizona Workers Act (LAWA) attempts to force unauthorized im­migrants out of the workplace with employee regulations and employer sanctions. The 2010 Support Our Law Enforcement and Safe Neigh­borhoods Act (SB 1070) complements LAWA by granting local police new legal tools to enforce Ari­zona’s immigration laws outside of the workplace.

LAWA’s mandate of E-Verify, a federal elec­tronic employee verification system, and the “business death penalty,” which revokes business licenses for businesses that repeatedly hire un­authorized workers, raise the costs of hiring all employees and create regulatory uncertainty for employers. As a result, employers scale back legal hiring, move out of Arizona, or turn to the infor­mal economy to eliminate a paper trail. SB 1070’s enforcement policies outside of the workplace drove many unauthorized immigrants from the state, lowered the state’s population, hobbled the labor market, accelerated residential property price declines, and exacerbated the Great Reces­sion in Arizona.

LAWA, E-Verify, and the business death pen­alty are constitutional and are unlikely to be overturned; however the Supreme Court recent­ly found that some sections of SB 1070 were pre­empted by federal power. States now considering Arizona-style immigration laws should realize that the laws also cause significant economic harm. States bear much of the cost of unauthor­ized immigration, but in Arizona’s rush to find a state solution, it damaged its own economy.


Some legislators and policymakers view Arizona’s immigration laws as a model for other states.1 This paper analyzes the Arizona immigration laws and the effect they have had on the immigrant population, citizens of Ari­zona, and the state’s economy. The laws have forced unauthorized immigrants out of the state, and the regulatory mechanisms have diminished economic growth, incentivized the creation of a larger informal economy, cre­ated uncertainty for businesses, and depressed property values. These effects serve as a warn­ing to other states seeking to enact Arizona-style immigration laws.

Arizona-style laws are economically de­structive and inimical to growth. Immigra­tion reform should proceed on the federal level rather than the state level. The federal government should increase and deregulate work visas and legal immigration, setting up a timely legal avenue for most immigrants.

Historical Background

American immigration policy was once the model for a free society. Prior to 1882, only the ill, criminals, and people with a high probability of harming Americans were barred from immigrating. This relatively free immigration policy contributed to a persistently large foreign-born U.S. popula­tion. From the mid-19th century to 1920, both the share of foreign-born residents and the annual rate of immigrant inflow were proportionately higher than they are today.2 Beginning with the Chinese Exclusion Act in 1882, Congress gradually passed more re­strictive immigration laws, so that by 1930, virtually all immigration was illegal.3

These restrictive laws prompted a new phenomenon of unauthorized immigra­tion.4 In 1924 the U.S. government created the border patrol authority to enforce the nation’s new immigration quotas.5 The Bra­cero Program, a program granting tempo­rary work visas, began letting in hundreds of thousands of low-skilled Mexican workers annually for farm work during World War II.6 Work permits provided a legal way to work and lowered unauthorized immigra­tion by about 90 percent, but the Bracero Program was eliminated in 1964, largely due to union opposition.7

The less efficient H-2 visa program8 still allowed temporary workers, but it was lim­ited, regulated, expensive, and bureaucratic, and H-2 visas are thus unusable for most employers.9 The short supply of green cards and temporary work visas available to low-skill potential migrants left unauthorized immigration as the only realistic alternative.

Significant immigration reforms in 1952, 1965, 1986, 1990, and 1996 increased the number of legal immigrants and temporary workers. Those laws also created workplace regulations, employer sanctions, internal enforcement mechanisms, and augmented border security to discourage and deport unauthorized immigrants. By the 1990s, legal immigration was virtually impossible if a prospective immigrant was not highly skilled, able to find an American employer sponsor, closely related to an American citi­zen or legal permanent resident, a winner of the lucrative diversity lottery, or a refugee.

Today, of the estimated 11.5 million un­authorized immigrants nationally, 73 percent are concentrated in just 10 states.10 Arizona is one of those 10 states and experienced a large increase in unauthorized immigrants from 330,000 in 2000 to 560,000 in 2008.11 Ari­zona disproportionately bears the fiscal costs of unauthorized immigration.12 The costs of the housing bust and the Great Recession pro­vided the political excuse for Arizona’s recent state-level immigration laws.

The result was the Legal Arizona Workers Act (LAWA), which was the first legislative ac­tion taken toward reducing unauthorized im­migration on a state level. Passed in July 2007, LAWA mandated that all new hires be run through E-Verify, an electronic employment verification system designed to identify and exclude unauthorized immigrants from em­ployment. Additionally, for a second offense of knowingly or intentionally hiring an un­authorized immigrant, the state is allowed to permanently revoke employer licenses at the employment location in question—essentially shutting down the business. Former Arizona governor Janet Napolitano called it “the busi­ness death penalty.”13 Both provisions went into effect on January 1, 2008, whereas the rest of the law was effective immediately.14

On April 23, 2010, Arizona governor Jan Brewer signed the Support Our Law Enforce­ment and Safe Neighborhoods Act (SB 1070) to extend state immigration enforcement outside of the workplace and “make ‘attri­tion through enforcement’ the public policy of all state and local government agencies in Arizona.”15 LAWA and SB 1070 forced em­ployers and local police to be on the front lines of immigration enforcement.

By January 2011, the number of unau­thorized immigrants in Arizona decreased by 200,000, a large 35.7 percent decline, due largely to Arizona’s immigration laws. Upon leaving Arizona, these immigrants took their labor, businesses, purchasing power, and housing demand with them. As a result, Arizona’s economy suffered.

You can read the full report as PDF here. by Alex Nowrasteh is an immigration policy analyst at the Cato Institute’s Center for Global Liberty and Prosperity.

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