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I got so caught up in the replies to my questions, I forgot the actual title of this thread!
So, after being educated by all these great posts, I have to say that I still am not sure what the answer is regarding punishment, other than:
1) Employers who knowingly hire illegal workers should be punished; those who abuse the illegal status of their workers ought to be punished to the degree that all profits from that illegal status are erased, and at least doubled, in terms of fines. Jail time for those that provide illegal documents, or aid in any form of ID theft (as occurred in the Marshalltown Iowa case recently - currently the recruiter is under indictment, AFAIK)
2) The work visa program should be expanded, and people who have weaited the longest should be given priority, along with:
3) Currently illegally working immigrants should be given priority, if they have proven themselves to be model citizens and contribute to the community (children in school, no serious criminal convictions, etc), but there will be penalties, perhaps multiplied by the number of years they have been here, in addition to any income tax owed.
4) All other illegal immigrants need to go back to their home country, and can re-apply for legitimate work visas, at the end of the line.
5) Some kind of immigrant ombudsman office should be established to help applicants navigate the process; perhaps this could be funded by the fines from the (formerly) illegal immigrants that are invited to stay.
Just a few thoughts from someone who is new to the topic, so I'm sure others can improve on them...
Castigat Ridendo Mores (laughter succeeds where lecturing fails)