The labor market effects of reducing the number of illegal immigrants

Abstract

A key controversy in US immigration reforms is how to deal with undocumented workers. Some policies aimed at reducing them, such as increased border security or deportation will reduce illegal immigrants as well as total immigrants. Other policies, such as legalization would decrease the illegal population but increase the legal one. These policies have different effects on job creation as they affect the firm profits from creating a new job. Economists have never analyzed this issue. We set up and simulate a novel and general model of labor markets, with search and legal/illegal migration between two countries. We then calibrate it to the US and Mexico labor markets and migration. We find that policies increasing deportation rates have the largest negative effect on employment opportunities of natives. Legalization, instead has a positive employment effect for natives. This is because repatriations are disruptive of job matches and they reduce job-creation by US firms. Legalization instead stimulates firms' job creation by increasing the total number of immigrants and stimulating firms to post more vacancies some of which are filled by natives.