The Labor Market Effects of Reducing Undocumented Immigrants

by Giovanni Peri and Andri Chassamboulli
Working Paper (2014)

Abstract:
The large number of undocumented immigrants in the US can be reduced using different policies. Some of them, such as increased border security, increased deportation rates or increased cost for illegal to look for jobs will reduce illegal immigrants as well as total immigrants. Other, such as increased legalization rates, would decrease the illegal population and increase the legal one. These policies have also different effects on job creation as they affect the firm profits from creating a new job. Economists have never analyzed this issue. This paper fills this gap. We set up and simulate a new model of labor market, search and legal/illegal migration between two countries. We then calibrate it to the US and Mexico labor markets. Crucially we account for the incentive effect of different policies on potential immigrants (labor supply), and on job creation by firms (labor demand). We find that policies increasing deportation rates have the largest negative effect on employment opportunities of natives. Legalization, instead has a positive employment effects for natives. This is because the disruptive effects of repatriations reduces job value and job-creation by US firms, affecting also jobs available to natives. Legalization by increasing the total number of immigrants, stimulates firms’ job creation as firms obtain larger profits from immigrants, who receive lower pay, and hence post more vacancies, some of which are filled by natives.

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