National Data | “Foreign Labor Contractors” a.k.a. Gangmasters—The New Immigration Paradigm?

We`ve all heard stories about Mexican immigrants doing the heavy lifting after Hurricane Katrina. But Chinese immigrants?

That`s right—2 to 3 thousand Chinese immigrant workers may soon help rebuild sewers, houses, and water systems in small towns along the Gulf Coast. Local officials claim the Help Wanted sign has been out for months, but big U.S. contractors are simply too busy to work in the affected area.

The Chinese workers won`t hop on a plane or take a slow boat from China in hopes of landing a job in New Orleans or Gulfport. They won`t enter illegally. If the deal closes they will be hired, en mass, in China by Tangdu International Enterprises—a Chinese labor contractor. When they arrive, they`ll work for two large Chinese companies—Beijing Construction Engineering Co., Ltd., and Beijing Urban Construction—and smaller local partners.

To add insult to injury, these companies say they`ll use Chinese building materials in order to avoid the higher-priced, but sturdier, American products.

What does this portend for structural integrity in a future Katrina? Or, more importantly, for the integrity of (what`s left) of our immigration controls?

For this anecdote is of more than local interest. It exemplifies a new model of immigration.

Traditionally immigrant workers negotiated directly with their U.S. employers. In the new paradigm, labor contractors like Tangdu hire immigrant workers for many U.S. employers simultaneously.  On VDARE.COM, these employers have been called gangmasters.

One of the largest contractors is an outfit called Global Horizons. Its website describes it as

“…the first company to establish a new and improved labor-recruiting, labor providing business model to meet the temporary and permanent needs of employers worldwide.”

“Recruiting quality workers from diverse places like Thailand, India, Nepal, Israel, as well as Eastern and Western Europe, Global Horizons brings these workers to any economy where domestic labor is in short supply because of the “economic evolution” occurring in that particular country. This, of course, includes the United States of America.”  

Global Horizons was founded in 1989 by an Israeli, and is currently headquartered in Los Angeles. At any one time it has 3 to 4 thousand farm workers under contract in up to 28 states.

Contract labor is increasingly the norm in agriculture. In 2002 43% of California`s farm workers were supplied by third-party contractors, the rest were hired directly by farmers. In 1983 only 28% were hired by contractors. [Farms Increasingly Rely on Subcontracted Farmworkers,  Petoskey News-Review, AP, July 14, 2006.]

Farm workers are brought under the H-2A visa program for seasonal agricultural workers. To earn a visa, employers must show that they`ve tried to recruit US workers first, and provide free, DOL-approved housing for all temporary hires.

But western farmers do not like the H-2A program. They say it is too inflexible for “perishable western agriculture” because it requires farmers to certify their need for workers 60 days before hiring them. The housing requirement is also regarded as onerous.

Enter the labor contractor.

In 2004 Global Horizons brought in hundreds of H-2As from Thailand to work in Washington State`s Yakima valley. The workers were housed in overcrowded motel rooms that violated local health regulations for human habitation. There were no kitchens or laundry facilities. Global Horizon`s workers were paid less than the wage for which they were contracted.

Washington State fined Global Horizons for violating labor laws, and in 2005 forced the firm to pay complete financial restitution to workers and the state totaling $230,000.  The employers didn`t pay the fine—Global Horizons did.

Similarly, if Global Horizons had brought in illegal aliens instead of H-2As, they would have absorbed the fines that would otherwise have been levied on the employers that hired them.

There are other advantages of hiring via contractors. Contractors enable employers, in effect, to outsource their HR departments, reducing the expenses involved in vetting new employees and applying for their visas. Some contractors even provide equipment for their workers—a big savings for employers.

But the big draw is the avoidance of legal liability. In the words of U.C.-Davis economist Phillip Martin, labor contractors act as “…..`risk absorbers,` absorbing fines that could otherwise be levied on the farms where the workers were employed in the event of immigration enforcement.”

In theory, the workers can also benefit. They`re more likely to have stable employment with a large contractor. The United Farm Workers supports the H-2A visa program—claiming that H-2A status makes farm workers more likely to join unions and press for wage hikes.

But in a global economy, these gains are elusive at best. Economic differences among countries are widening—encouraging migration from low to high wage countries.

In 1975, for example, the per capita income gap between rich countries (defined as those with $9,300 or more per person per year) versus poor countries (below $750 per year) was 41 to 1; by 2000 this gap had grown to 66 to 1. [Phillip Martin, “Managing Labor Migration: Professionals, Guest Workers, and Recruiters,” United Nations Expert Group Meeting on International Migration and Development, July 6-8, 2005.]

International contractors can round up crews from all over the world, and then negotiate with U.S. employers on behalf of the entire crew. There inevitably is a race to the bottom, with Mexicans (per capita GDP $10,000 per year) displacing Americans ($42,000), and Chinese ($6,800) displacing Mexicans. Even Chinese income levels would look good to an Indian worker ($3,300) or a Bangladeshi ($2,100).

The wider the income gap between the native and immigrant workers, the more profitable labor contracting becomes.

No one knows this better than the federal officials who administer the H-2A visa program.

In fact, several ex-administrators of the H-2A visa program have left the Department of Labor to open their own labor brokerages. They became labor contractors—applying to their former colleagues for visas.

Surprise, surprise: the number of jobs certified as requiring H-2A workers rose sharply after they left. Not to mention the fees collected by the new labor contractors.

We don`t allow military brass to leave the Pentagon one day and work for defense contractors the next. Shouldn`t we have the same safeguards for officials who administer our immigration laws?

This is moral hazard, pure and simple. Yet it`s apparently all legal—as are the immigrants this corrupt system brings into the country.

Legal, that is, until Congress wakes up. Or is woken up.

Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.