What ICE Raids Cost Local Businesses

You would expect a temporary blip, right? A temporary drop in foot traffic or spend maybe it may be I don't know a day or two Maybe a couple weeks But in my study what I found is over a period of about a year the effects never went away Welcome to the ripple effect the podcast that takes you on a journey through the minds of Wharton faculty I'm your host Dan Loney and in each episode we'll be diving deep into the inspiration behind the groundbreaking research that Wharton professors have conducted and Exploring how their findings resonate with the world

today The topic of ice raids continues to be top of mind for many people in this country and new research from Wharton professor Ezekiel Hernandez looks at just how much Impact those raids have on local economies. Professor Hernandez is Professor of management covering areas like innovation corporate strategy global strategy and immigration Zeke great to talk to you again. How are you, sir? I'm doing well. It's nice to be with you again, Dan Okay, so take us through this research and the importance of doing it, especially when you're looking at local economies Yeah, I mean look we all watch the news last year in this year of ice agents descending on lots

of American cities and there was a there was a stated purpose to catch people with criminal backgrounds and And enforce immigration laws, but I think you know given the the scale the unprecedented Nature and budget that ice has now and and the visibility with which they descended on those communities You know in the background when you watch those raids you could see, you know businesses Supermarkets and coffee shops and all of these these these local on the on, you know on the street businesses And it occurred to me that it's important

to understand if I showing up in these communities is affecting those Businesses the people that work in them the people that shop in them. So so I gathered the data to see What the effect would be I gathered information on on two things on foot traffic people showing up either to work or to shop and then on on spending in businesses that That that sell something on the street and that's those are the outcomes that I wanted to study And so what are the impacts that you found out by seeing ice raids in certain communities? What what happens over I guess the question is what's happening in the short term and

maybe even do we need to look at what's happening in the longer term Yeah, let's start with the short term because that's what I was able to study I looked at what happened during the first year of the current administration and the effects are are Surprisingly strong so I found that there was a decline Of foot traffic of about 3% that's relative to the previous year to 2024 And that's 3% drop in both people Showing up to work and people showing up to shop and a 7% decline In spending at retailers to quantify this in a different way Over the first year of the

current administration, that's a drop in 8 billion 8 billion unique visitors people stepping in to work to workplaces or retailers and Up to about 14 billion and lost spending Compared to places that were not targeted by ice. So these are pretty big effects I mean if we found that Economy wide we saw such drops in spending and people showing up to work or shop We would be calling that a recession effectively. What ice caused is recessions in targeted areas is the expectation that the lack of spending or the loss of spending is having a Certain level of impact on those businesses, maybe

not to the point of closure But it is obviously having a dent on the company that has that coffee shop or has that local grocer Yeah, I mean that that's that's that's a lot of lost spending right per I mean if So, let me express the effect in another way, right? So the drop in spending is about 7 % sorry about 6% excuse me about 6% per week In targeted areas so every week right you suffer a 6% drop now you might think that's not Consequential I can assure you it is that's the difference between sometimes keeping your business open or closed It's the difference between having say a

shift at a third shift at the factory or not. It's the difference between Being able to hire people to keep the business open or having to cut back on that And so yeah, I'm not saying that every business in a targeted area closed But it contracted and and that's important obviously because it means people are spending less But it also means fewer people are able to work I don't know if this went into your research on this as well But do we know that that lost spending is it being spent in other locations or are the consumers not spending it at all? Holding on to it for a period of time.

Well, it's both it's both so so one of the things I found is that the spending effect is Clearly stronger the drop is stronger the closer of businesses to the epicenter of where I showed up, right? So if you're half a mile away The effect is much more negative than if you're ten miles away And so some of that spending is probably gonna mean that people are going further away To shop so they might say go to the suburbs to shop instead of downtown or something like that So some of it is a geographic substitution, but it's not it's not a one-for-one recovery of the last spending and here's why Remember a big part of the effect is people not showing up to work.

So this is a shock to people's income So people have less income to spend one of the things I found that I found that I personally thought was very interesting is I looked at whether there was a substitution to online shopping So if you would think look, it's just that people are afraid but they have the same level income. They're just spending it differently You what you might see kind of a partial substitution But actually what I found is that even online shopping at these retailers is going down, right? And and that's consistent with people not having

more income There have been other studies not by me But by other economists that have shown that another effect of these ice raids is that people lost jobs and not just immigrants But also, you know native-born people and so this is really a shock to income Which means that it's not just a redistribution of spending dollars Well, and also I would imagine the potential impact is on the business itself what the future of that business can be There may very well be some businesses that shut down and in some communities

local business is really the heartbeat of What that that level of the economy is going to be in that particular area Yeah. Yeah, this is really important now Of course, you're talking about a bit more of a long-term effect that that because my study ends in January of 2026 I'm not able to observe but now we have a little more runway that we have to start studying those things But one thing I was able to observe even in the short run is that these spending and foot traffic effects are twice as large For local independent businesses than for businesses affiliated with a national chain So

for example the local Starbucks versus the local independent coffee shop You know the Starbucks experience is half of the effect and so, you know These independent businesses are really often the heartbeat of local neighborhoods, right? They're not the only employers, but they're very important employers and they're losing the most It's it sounds like is there then? There's some level of association being put together by the consumer that that business the independent business may not be as safe or may not be as Comforting as the the national chain Yeah, I mean look if you pay

attention, I mean this this also has something to do with ISIS targeting strategy, right? Where are you going? Are you gonna go to the Hispanic corner store? Right, or the independent coffee shop or are you gonna disrupt the operations of a target or a Walmart, right? Clearly you're gonna do the first one because that's where you think you're gonna find more undocumented people But also it's just less disruptive to you know to interrupt a Walmart or a target than an independent business is less likely to complain and also I have heard Anecdotally from people who are scared and by

the way, not just immigrants or Hispanics but everybody That one of their responses to the fear of going out and being caught in the mess that that ice might be creating is that they'll Go to places that they see as more quote mainstream, which would be more like chain affiliated business, right? So it let me go back to something you said a moment ago because I had wondered whether or not the impacts were going to Be felt on a certain segment of the population or if they were going to be more broad and more widespread and seemingly that that Sounds like it's the case Yeah, I'm glad you asked this damn because there

there are two things. I think that really we have to emphasize here I mean think look if you're saying look we would expect a Place that has been targeted strongly by a police force to experience some effect You would expect that but two things really surprised me What one is the one you asked about is that? You would think maybe it's like the people who are not showing up to work or not shopping or whatever They would be people with the most what rational fear of being targeted. So that would be immigrants or Hispanics, right? These would be the two most people more

likely to be targeted as it turns out. That's not the case everybody regardless of ethnic background national background experience a decline in In showing up to work and spending and the amount spent and so that means that this is creating fear well beyond Anyone who you would imagine would be targeted That's very important to understand because sometimes when I've talked about the study people say well, you know You should expect undocumented immigrants to spend less or be a little more afraid because they're the target but remember it's it's everybody This is

important The second thing that I think is worth emphasizing is that this is not your grandmother's ice where they would target say a business say I don't know a tire shop go in and come out and within a few hours the thing is over and so If that were the case you would expect a temporary blip right of temporary drop in foot traffic or spend maybe it may be I Don't know a day or two maybe a couple weeks But in my study what I found is over a period of about a year the effects never went away Right and so that the ripple effect of these of this new approach to enforcement is causing

much more permanent Damage than one would expect so this there that that seemingly is an element of perception of how the people are looking at and Feeling about what is going on in this particular time compared to what may have occurred 5 10 20 years ago Yeah, because remember I'm comparing it to the year before where like there was still interior enforcement But the approach to it was very different Episodic and so some of it is reflecting the fact that ice with it's much larger budget, but also with a different strategy It's more like a constant police force in

neighborhoods rather than an in-and-out force But the other thing too is it's reflecting that people are responding to this They're more afraid but also it's reflecting that you can't just turn the switch on and off, right? If a business closes you can't just bring it back in two weeks if a business hires three fewer people They can't just like bring them back immediately, right? So these shocks take a while to recover from and if you read the news at least anecdotally There's tons and tons of reports in places like Minneapolis, Portland, Los Angeles Etc.

That that's still what nearly two years later now are still showing significantly depressed economic activity compared to before so when you have a situation where a Portion of a city has been targeted And people decide well, I'm not gonna shop there I may go ten miles away to do my shopping at whatever that store might be But is there an economic trickle-down effect on the larger area outside of that initial area? Because of what is going on in that one area like does it kind of spiderweb out over time? I think I think that that's we have to study that right? So I don't I don't have an empirical answer to say Yes, we have found that

in part because we need more time to observe it, but I think you're asking exactly the right question This is exactly what we need to look at and and I think of outcomes like investment in that community Right is the investment spigot gonna be turned off? Are there gonna be new businesses? Think of taxes like sales taxes property taxes, you know property values these things that really matter for communities We have to understand if that's happening, but but the short-term shock is not just short-term, right? It's already fairly permanent even in a period of one to two years And so I

think we should be worried about that and and hopefully next time we talk I'll have some results for you well, and I said that because The timing of where of how this is happening now We have a lot of cities in this country that are still to a degree Recovering from the loss of the pandemic when you had so many businesses shut down and so we're at a time where Especially in inner cities. We need to have more and more businesses and this could be another negative impact that's added on top of that Yeah, exactly exactly, right? I mean that's that's exactly the point and

and you know, you don't have to speculate about that I mean just look at look at you know, Charlotte look at Lake Street in Minneapolis look at You know the areas around Home Depot's in LA like to this day, right? these are these economies are much more depressed than they were and I think it's important to emphasize that unlike kovat or or a true economic recession This is being caused by a policy choice that that our government has made And you know to me that the the implication here is not to say, okay, you know, we end all immigration enforcement There is a role for that in a society.

That's legitimate but I think the question is when our policy approach and funding amount to immigration enforcement is Causing permanent damage on all businesses on all individuals and those effects are not going away I think we can agree that that is not the role of immigration enforcement. We have to rethink how we're doing it All right. So what's the next step then in your research to kind of? Take this further down the road Yeah, we got a look at I think two things one is the long-term effects we talked about entrepreneurship Investment, you know property tax collection

all of these things that that are essential for the lifeblood And and are even harder to recover than say a temporary drop in spending or foot traffic That that would be one. I think the other is we do have to see if The way ice has has so in the first year of the current administration under Kristi Noem's leadership ice took a very Deliberate very visible very much like wanting to be in the news and wanting to tell the world here. We are under Mark Wayne Mullen The actually the number of arrests has increased even more so the so the perception that this is

quieted down is not true But the approach is a bit more subdued a bit less like we want to be in the news And so I think it's important to understand if that is making a difference or not. Those would be two really critical questions See great to talk to you again. Thanks very much for your time today Thanks, Dan. Great questions. Good to see you. You got it is eco Hernandez professor of management here at the Wharton School Thank you for listening to the ripple effect. We hope you found this episode informative and engaging Don't forget to subscribe and leave us a review so that we can continue to

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