US employers are stuck in a hiring catch-22

The nation’s current labor shortage has U.S. companies turning more frequently to foreign workers to fill open jobs. There are 9.8 million job openings, but only 5.9 million unemployed workers. To supplement the insufficient labor force, 87 percent of U.S. employers are currently recruiting and hiring foreigners.

This means they are also filling out the requisite I-9 forms, which sounds simple and straightforward enough. Except it isn’t, because employers now find themselves in a bureaucratic catch-22: to fill job openings, they need foreign labor, which requires completing the Form I-9 to verify the identity and employment authorization of said labor, but by doing so they run the risk of falling victim to the system’s flaws. That risk could trigger a reluctance on the part of employers to hire foreign workers, which in turn hurts the labor market.

With almost two jobs available for every unemployed U.S. worker, the U.S. must supplement its labor force. The industries with the most job openings — and would therefore benefit from more immigrant labor — are the “professional and business” and “education and health service” industries, with nearly 2 million job openings in each sector. Yet, employers are at some level of risk of falling victim to unfair penalties under the flawed I-9 verification system, often referred to as E-Verify.

The Form I-9 must be completed by any U.S. employer hiring a foreign worker to verify the individual’s identity and eligibility for employment in the U.S. However, the system is not immune to fraud. Notably, not all states provide the Department of Homeland Security (DHS) access to data sources that allow them to validate document authenticity and data from the Social Security Administration, and DHS itself is not always up to date. These flaws can lead to errors in the verification process, none of which are the employers’ fault.

While the I-9 verification system is not foolproof, employers should not be penalized for unknowingly hiring people who may be falsifying their identity. Penalties for recruiting unauthorized non-citizens are based on firm size, history of previous violations, and the severity of the violation, among other factors. They range from $252 to $2,507 per individual for a first offense and higher penalties for subsequent offenses. However, if the system makes a mistake, employers could be stuck paying thousands of dollars for labor that they didn’t realize was fraudulent.

To force employers to pay penalties for a systematic error would disincentivize the hiring of foreign-born labor, a necessary resource in the current labor shortage, as well as potentially encourage discrimination against workers who may appear to have been born abroad.

The only way to avoid exposure to these unfair charges and penalties would be to stop hiring foreign workers. After all, if the I-9 system is mandatory for international hiring, and the I-9 system is the cause of unfair penalties, avoiding the system altogether would spare employers the headache of cleaning up a problem they didn’t create in the first place.

If nothing changes, businesses will likely ask if the benefits of hiring foreign workers are worth the costs. When faced with the penalties of the I-9 system as well as other challenges related to the immigration system, such as visa caps, backlogs and processing times, employers could begin to balk at the opportunity to hire non-citizens simply to minimize risk and avoid jumping through bureaucratic hoops. The result of this would be a persistent labor shortage accompanied by stagnant economic growth, an overworked labor force and increasing labor costs.

If the shortage continues, there could be ripple effects far beyond the labor market itself, including rising wages and supply chain issues in the short term, and halting Gross Domestic Product growth in the long term.

Employers are still struggling to recover from the pandemic and the government penalizing them for following a flawed system while doing nothing to fix those flaws will not only exacerbate their challenges but the nation’s as well. Let’s fix the I-9 system so we can stop going in circles and start moving forward to a stronger labor market.

Isabella Hindley is a labor market and immigration policy analyst at the American Action Forum, an independent, nonprofit 501(c)(3) organization that leads the center-right on economic, domestic and fiscal policy issues.