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KAI RYSSDAL: The search for a solution to illegal immigration fundamentally comes down to one of two approaches. The first is to go after the supply side. That is, stopping immigrants from coming here. The other is what you might call the demand side. Going after companies that need the labor force those immigrants supply. In Arizona an estimated 1 in 10 workers is undocumented. That's double the national average. It's also the reason the nation's toughest demand-side immigration law will go into effect there tomorrow. It could eventually become a national model for how to deal with illegal immigration -- if Arizona doesn't go bankrupt first. From the Americas Desk at WLRN, Marketplace's Dan Grech reports.
DAN GRECH: Arizona's new law punishes businesses that knowingly hire illegal immigrants. Two violations and a company's business license can be revoked, effectively shutting it down.
Sheridan Bailey runs Ironco, a steel-beam manufacturer in Phoenix. About half of his 100 workers are immigrants. He says without them his company would go under. Bailey says he's already fired several workers in anticipation of the employer sanctions law. The rest are on notice: come January 1st, the dragnet is out.
SHERIDAN BAILEY: It creates an air of insecurity, uncertainty and doubt about the workers who we are trying to motivate to be productive. It's a toxic situation.
Last year, Bailey raised the wage for steel fitters to $20 an hour, well above his competitors. But even that didn't convince more native-born workers to take up a blowtorch in Arizona's 112-degree heat.
BAILEY: We're scouring the neighborhoods, we're talking to ex-offenders, we're going to American vets, and we're spending lots of money and time and attention. But it's not enough to solve the problem.
Bailey says he recently signed a deal to outsource some production to Mexico. Arizona, like the rest of the nation, is facing high energy prices, a housing downturn and an impending recession.
Dan Griswold's with the Cato Institute.
Dan Griswold: Imagine the consequences to the business sector of Arizona if they not only have 10 percent of their workers in jeopardy of being chased out of the state, but if thousands of them are in jeopardy of losing their business licenses. This is a kind of economic suicide.
So why do it? Arizona Governor Janet Napolitano said on KJZZ-FM in Phoenix that she signed the bill to set an example for the nation.
JANET NAPOLITANO: This bill is designed to deal with the demand side of this immigration equation. And by doing so, I think it will illuminate, not just for Arizonans but for the rest of the country, what the stakes in this immigration debate really are.
Economists say that Arizona, by acting first, has put its economy on the line. Judy Gans is with the University of Arizona.
JUDY GANS: When a state takes it on, then it puts itself at a competitive disadvantage relative to other states, then you end up shrinking the economy because needed workers aren't available.
Gans found that Arizona's immigrants, legal and illegal, contribute $44 billion in economic output. That's 12 percent of the economy. And that's what may be at stake when the sanctions law takes effect January 1st.
I'm Dan Grech for Marketplace.