Immigration reform: Which states would feel it most? California, for one.

If immigration reform is implemented, and newly documented workers start paying taxes, the money flowing into state coffers will increase, as will the demands on state social services.

With immigration reform now firmly on the agendas of both the Senate and White House, a key question is how to assess its possible impact on states, particularly in two of the most important areas, the labor market and fiscal policy.

Who will be the most affected? While every state would feel some effect, the states with the most illegal immigrants are the most obvious to register the impacts of any changes to immigration law. California tops that list with nearly a quarter of the nation’s illegal immigrant population of roughly 11 million.

Ultimately the most significant political impact California would feel would be a slew of new Democratic voters, Steve Camarota, director of research at the Washington-based Center for Immigration Studies, says with a laugh.

But while that may affect elections many years in the future, he says, the two places to watch for the more immediate impact of immigration reform are in fiscal policies and the labor market.

As the newly legal residents begin to pay taxes, they will eventually qualify for state health and welfare benefits, which will raise costs to the state. Beyond that, this same pool of workers – 80 percent of whom do not have education beyond a high school level – will compete directly with the native population of workers with similar education and skill levels for jobs that have demanded documented legal status.

“California already has a very low level of participation in the work force by this group between the ages of 18 and 29,” he says. He notes that in 2000, the native-born cohort of workers in that age group and with no more than a high school education was 64 percent. Last year, that figure dropped to 43 percent. “This is below the national average of some 50 percent,” he says, adding that reforms would greatly increase the numbers of workers who can compete at that level.

“Now you will have many more people competing for low wage jobs such as the local security guard at an office building or a UPS delivery person,” he adds.

On the flip side, this influx of documented workers would fill tax coffers in many states, in particular the ones with large undocumented populations, Texas and Florida being the next largest after California, points out Ian Macdonald, co-chair of the global mobility and immigration practice at the law firm Littler Mendelson.

“This will have a direct impact on state funding for health care and education, as well as on certain industries such as construction, agriculture, hospitality, and others where unskilled workers are needed,” he says via e-mail.

New burdens of government paperwork to process applications for legal status are sure to cost current state budgets, while requirements for employers to screen applicants for that status may bring their own problems, he says. A question currently on the table is whether to make E-Verify, a digital screening tool, mandatory for employers to use on new hires only or on the entire workforce, notes Mr. Macdonald.

By having employers run both existing and new hires through this comprehensive database, many employers will likely find that many of their existing employees were in fact undocumented workers who had escaped detection, he says. This could be a hardship for a company experiencing a sudden drain on its employee base.

Some politicians support this, he notes, adding that US workers will no longer be competing against undocumented workers “and good corporate citizens will no longer be competing against companies that build business models around undocumented cheap labor.”