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The Effects of Human Trafficking on Labor Markets in North Carolina The Effects of Human Trafficking on Labor Markets in North Carolina Elizabeth Kilpatrick Salem College Due to the academic nature of this paper victims are often referred to as product and perpetrators as sellers. This is to simplify the concepts that are represented in this case study. This terminology does not reflect the opinions of the author and are not meant to detract from the seriousness of the subject. Human trafficking involves real people and should not be taken lightly. The Effects of Human Trafficking on Labor Markets in North Carolina Abstract While human trafficking covers prostitution and forced labor, this paper focuses on the effects of forced labor on the labor markets in North Carolina. Americans commonly associate forced labor with illegal immigration. And this paper looks into the effects of illegal immigration on labor markets. It also discusses the main source of human trafficking with is domestic trafficking. This sources coupled with the monopolistic competition inherent in human trafficking markets shifts labor markets in North Carolina from a spatial model to the Chamberlin model. The paper further discusses why human trafficking is low risk and high profit and some suggestions for combating human trafficking occurrences. The Effects of Human Trafficking on Labor Markets in North Carolina Introduction Formally known simply as slavery, human trafficking is a crime of business. According to the North Carolina General Statues, a person commits the offense of human trafficking when that person knowingly obtains another person with the intent that the other person be held in involuntary servitude or sexual servitude (2012). There are numerous ways that victims are obtained. These methods range from outright buying individuals from poor families in developing countries to promising paid work and reneging on contracts once in a power position. In all forms of human trafficking, perpetrators use fees to force victims into debt bondage (Hepburn & Simon, 2010). These fees usually cover transportation and housing and exceed the wages that victims receive. In addition, victims are held under armed guard and threatened with physical harm to themselves and their families to keep them under their captors thumb. These threats coupled with the nature of the crime (victims are also criminals) keep victims from reaching out to law enforcers, even when given the opportunity to do so. This significantly lowers the risk that perpetrators face. In addition, to low risk, sellers face a highprofit margin. Human trafficking is estimated to be a $150 billion international industry (Polaris, 2016). Traffickers are able make profit when obtaining product and again when they sell. Often, traffickers received smuggling fees from their victims to immigrate them to their host country. Then, as discussed above, the traffickers will put their victims into a position of debt bondage. So perpetrators receive a profit margin from their “product.” In addition, they are able to receive more profit from “selling” them to prospective employers due to low wages. It is estimated that a trafficked person will earn the The Effects of Human Trafficking on Labor Markets in North Carolina trafficker 810 times more than their nontrafficked cohorts (Jayson, 2013). These high profit margins entice many to enter this market. Literature Review Involuntary Servitude There are two types of human trafficking. The most known form is sexual servitude. Due to the highly illegal nature of this type it tends to be the focus of policies and reforms involving human trafficking. The dramatization of sexual servitude means that the other form of human trafficking, involuntary servitude, is often overlooked. This is despite estimations that it constitutes 68% of human trafficking (Polaris, 2016). And like sexual servitude, labor trafficking involves children. In fact, children are preferred to adults since they are easier to control and maintain (Hepburn & Simon, 2010). Labor trafficking constitutes a large portion of violations and includes domestic services, manufacturing, construction, and migrant laboring. Besides the dramatization of sexual servitude, another reason that forced labor is overlooked is that is frequently hidden by legitimate businesses. This is seen in the case of Million Express Manpower. Incorporated in North Carolina in April 2003, this company advertised that it was an employment agency that recruits Thai laborers to work around the world (Jayson, 2013). This company promised laborers legal visas and 3 years of employment at $8.24 per hour to workers that managed to pay $11,000 in fees to secure employment (Hepburn & Simon, 2010). However, once the workers came to USA all of their documentation was seized and they were forced to work on a farm in eastern North Carolina. This legitimate company operated for seven years before it was eventually dissolved for failing to file mandatory annual reports (North Carolina Department of the Secretary of State, 2013). A lack of awareness on the The Effects of Human Trafficking on Labor Markets in North Carolina consumer side allows businesses such as Million Express Manpower to take advantage of willing migrants. Illegal Immigration While these victims were legal immigrants, one cannot discuss labor trafficking without broaching the subject of illegal immigration. “The average gain to a moderately skilled worker migrating from a developing country would be around $10,000 a year, about double the average GDP per capita in such countries” (Orrenius & Zavody, 2012). It is little wonder that many are willing to immigrate. Unfortunately, in recent years, many countries have increased their restrictions on immigration forcing those who want to immigrate to find other methods, such as smuggling. This places migrants in a prime position to be taken advantage of by traffickers. This is especially true of immigrants coming to the United States. The US is one of the top 10 destinations for human trafficking (Hepburn & Simon, 2010). And North Carolina ranks in the top eight states in the country for factors conducive to trafficking in persons (NCCAHT 2013). These factors include the state’s strategic location on the Eastern seaboard, the number of major interstate highways traversing the state, the large agricultural economy, the number of military installations and the number of ports located in the coastal region. North Carolina’s large agricultural and domestic service sectors rely heavily on migrant workers and are a prime target for traffickers (Fair, 2012). These conditions lead to sourcing for perpetrators of human trafficking. Domestic Human Trafficking While one source for traffickers to obtain product is through illegal immigration, another source is domestic human trafficking. Not all victims of forced labor come from outside of the The Effects of Human Trafficking on Labor Markets in North Carolina United States. The story of “Sarah” is one example of this. “Sarah” was an American runaway who was introduced to her captors by a friend (Hepburn & Simon, 2010). Another case involved laborers from Florida. These laborers were brought to North Carolina from Florida with the promise of full time agricultural work, but once they arrived that were charged for incidentals, such as meals, and were prohibited from leaving the camp (Jayson, 2013). However, these cases are only small examples of the extent of domestic trafficking. Over half of the cases reported to the National Human Trafficking Resource Center in 2015 involved victims that were US citizens (2016). And of the 15,000 cases reported to the NHTRC from 2007 to 2015, 8,676 were US citizens (2016). Due to this data it is easy to see that policies regarding immigration do not have a significantly negative effect on human trafficking. Economic Model Monopolistic Competition If policies and law enforcement are to be effective in eradicating human trafficking they must take into account the economics of human trafficking since it is a crime of business. Human trafficking is a monopolistically competitive industry (Wheaton, Schauer, & Galli, 2010). In monopolistic competition, there are many buyers and sellers. “Because many people have some knowledge of the techniques of trafficking, traffickers are easily replaced” (Wheaton, Schauer, & Galli, 2010). Not only are traffickers easily replaced the high profit margin easily covers the high initial costs to set up a “trade route.” While there is a high initial cost for entering this business the marginal cost per unit is extremely low. This is due to the fact that the fixed costs cover methods that do not incur additional costs until much higher quantities. And as The Effects of Human Trafficking on Labor Markets in North Carolina discussed above, the large agricultural and domestic service markets provide plenty of employers wanting lowcost labor. Furthermore, in monopolistic competition, sellers are able to have some control over the price due to differential characteristics of their products. “Different attributes Figure 1 30s are needed for prostitution or agricultural work or domestic service…” (Bales, 2005). Some workers are Male, 30s preferred based on personal attributes such as age (i.e. children) or strength or gender. These workers are then selected for having the correct combination of attributes. Since every individual differs slightly, this gives the seller bargaining power with the buyer allowing them control of the price of their product. Female, Spatial Model 20s These same characteristics are true of the legal labor markets within North Carolina. There is variety among workers. The same variety seen in victims of human trafficking, including skilled versus unskilled workers. Labor markets are Male 20s similar to the spatial model of monopolistic competition. The spatial model accounts for variety among similar products that are closely substitutable. As seen in Figure 1, employers have preferences over the type of employee that they are wanting. The employee that is hired will be the one that mostly matches the employer’s preferences. The spatial model describes why consumers are willing to pay more for a product that is closer to their preferences than another product, even when both products provide the same service (Frank, 2015, 440). This gives laborers the bargaining power with the employer over the cost of their services. The Effects of Human Trafficking on Labor Markets in North Carolina Chamberlin Model However, legal laborers can Figure 2 only bargain effectively when they have an awareness of competing prices. Due to the secretive nature of human trafficking, it changes the labor markets in North Carolina from the spatial model to the Chamberlin model. “A fundamental feature of the Chamberlin model is the perfect symmetry of the position of all firms in the industry” (Frank, 2015, 437). Both legal laborers and human traffickers offer buyers the same services. However, because human trafficking is a shadow market, legal laborers do not respond to changes in price or quantity since those are relatively unknown. As a result, traffickers face two demand curves for their product. The first demand curve (represented by “d” in Figure 2) accounts for changes in demand when traffickers change the prices for their own product. The second demand curve (represented by “D” in Figure 2) accounts for the changes in demand when the pricing changes for the whole market. So traffickers have to keep in mind variants that will not only affect pricing for their particular products, but one that will affect the market as a whole. Empirical Findings Due to the nature of the human trafficking market, when the price of their product is comparable to legal laborers their demand goes away. This is reflected in Figure 3. Therefore, there is only a demand for human trafficking when they can offer a product that is below the cost The Effects of Human Trafficking on Labor Markets in North Carolina of legal laborers. At price points below the cost of legal laborers, employers are able to enjoy the increased profit margin that low labor costs afford them. “An additional benefit to employers is the very lost cost of discarding trafficked victims after they can no longer contribute to profits… [if] the costs of maintaining a worker exceed the revenue he or she generates, he or she is discarded and replaced” (Wheaton, Schauer, & Galli, 2010). Unlike legal laborers there are no unemployment costs for the employer. This presents the employer/buyer with very low costs regarding labor. However, there are additional costs with human trafficking that are not present with legal workers. These costs include penalties such as prison time and fines. Empirical evidence of these penalties, however, shows that conviction rates for this crime are extremely low. In a study by Farrell, Owens, and McDevitt, they discovered in their analysis of 140 human trafficking cases in which the elements necessary to meet the definition of human trafficking were present, The Effects of Human Trafficking on Labor Markets in North Carolina very few defendants were charged with human trafficking (Spohn, 2014). A large factor in this is the fact that prosecutors make charging decisions based upon trial sufficiency rather than legal sufficiency. Due to the lack of common knowledge and the stereotypes surrounding human trafficking (such as victims deserve their circumstance since they were trying to enter the country illegally). Perpetrators then get off with lesser counts that are easier to get a conviction of, negating some of the risk associated with human trafficking. Further studies show that law enforcers are unequipped to handle human trafficking cases as well. In a survey of 393 sheriff offices, only three “indicated that they had a unit specifically dedicated to investigate human trafficking” (Jayson, 2013). However, fifteen agencies had indicated that they had encountered cases of human trafficking and that these cases had been uncovered in the course of another investigation (Jayson, 2013). An officer never knows when they will come across a human trafficking case. And barriers to victim compliance, as discussed earlier, further complicate these proceedings. Discussion Law enforcers are the first ones on the scene of a human trafficking case. If they are inadequately prepared to handle these cases, offenders will continue to escape punishment for their offenses. Policies need to focus on increased training for law enforcers. Rather than just having units that are trained to handle these situations, all law enforcers need to receive training. This is especially true since one never knows when they will stumble upon a human trafficking offense. In fact, the main barrier to discovery and investigation of human trafficking is that officers lack the training to properly recognize human trafficking (Jayson, 2013). Not only will The Effects of Human Trafficking on Labor Markets in North Carolina training help officers in identifying human trafficking, better investigation practices will assist the prosecutors. In addition to more investigative data, for the case to be “trial sufficient” the judge and jury need to be educated on human trafficking laws to properly rule. So not only does law enforcement need to receive training, there needs to be training for jurors. Once that has been accomplished, prosecutors will be more comfortable adding human trafficking charges to cases that warrant them. This alone will not be sufficient since, to be truly efficient, policies need to attack the demand side of the human trafficking equation. History has shown that policies affecting the supply have little effect on the supply of victims. Therefore, policy needs to lower the demand for such product. If demand can be lowered so that marginal cost exceeds marginal benefit, there will be a decrease in supply due to offenders leaving the market. Conclusion This evidence shows that continuing to attack the supply side of the human trafficking equation has little to no effect on it. If North Carolina wants to put an end to the human trafficking that it attracts, the demand side of the equation is where it will see results. Due to the high initial costs if policies can lower the demand of the product to levels where marginal cost exceed marginal profit, human traffickers will start to exit the market lowering the supply of victims. The Effects of Human Trafficking on Labor Markets in North Carolina References Advan, Nazli (2012). Human trafficking and migration control policy: Vicious or virtuous cycle? Journal Public Politics, 32 (3), 171201. Doi: 10.1017/S0143814X1200128 Bales, K. (2005). Understanding Global Slavery. University of California Press, Berkley. Fair, Yolanda. (2012, Feb 28). Human Trafficking Policy and Legislation: Adequate Protections and North Carolina Solutions. WomenNC CSW 2013 Fellowhip. Retrieved from http://www.womennc.org/documents/2013CSW/Papers/Research/Yolanda.pdf Frank, Robert. Microeconomics and Behavior 9 ed. New York: McGrawHill Education, 2015. Print. Galli, Thomas V., Schauer, Edward J., & Wheaton, Elizabeth M. (2010). Economics of Human Trafficking. International Migration, 48 (4). Doi: 10.1111/j.14682435.2009.00592.x Hepburn, Stephanie, & Simon, Rita J. (2010, May 15). Hidden in plain sight: Human trafficking in the United States. Gender Issues, 27 (12), 126. Doi: 10.1007/s1214701090877 Jayson, Karen G. M.S.C.J. (2013, Oct 2). Human trafficking in North Carolina: Human beings as a commodity. N.C. Governor’s Crime Comission Criminal Justice Analysis Center. Retrieved from http://www.nccrimecontrol.org/div/GCC/pubs/Human_Trafficking_North_Carolina_2013.pdf National Human Trafficking Resource Center (NHTRC). (2016, March 31). Hotline Statistics. Retrieved from https://traffickingresourcecenter.org/states National Human Trafficking Resource Center (NCCAHT). (2007). North Carolina Trafficking Task Force. US Department of Justice, Federal Bureau of Investigation. Retrieved from humantrafficking.unc.edu/files/2011/03/NCHumanTraffickingTaskForceManuel.pdf North Carolina General Statues (2012). Human Trafficking Legislation: Article 10A 1443.11 North Carolina Department of the Secretary of State (2013). Corporation Search. Retrieved from www.sosnc.gov Orrenius, Pia, & Zavody, Madeline. (2012). Undocumented Immigration and Human Trafficking. Handbook of Economics of International Migration, 1A, (659716). http://dx.doi.org/10.1016/B9780444537645.00013X Polaris. (2016). The Facts. Retrieved from https://polarisproject.org/facts The Effects of Human Trafficking on Labor Markets in North Carolina Sphon, Cassia. (2014). The nonprosecution of human trafficking cases: An illustration of the challenges of legal reforms. Crime Law Soc Change 61, 169178. Doi 10.1007/s10611013 95080.
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