The Economic Logic Of Illegal Immigration
Illegal immigration is a source of mounting concern for politicians in the United States.
In the past ten years, the U.S. population of illegal immigrants has risen from five million
to nearly twelve million, prompting angry charges that the country has lost control over
its borders.  Congress approved measures last year that have significantly tightened
enforcement along the U.S.-Mexico border in an effort to stop the flow of unauthorized
migrants, and it is expected to make another effort this year at the first comprehensive
reform of immigration laws in more than twenty years.
Legal immigrants, who account for two-thirds of all foreign-born residents in the
United States and 50 to 70 percent of net new immigrant arrivals, are less subject to
public scrutiny. There is a widely held belief that legal immigration is largely good for
the country and illegal immigration is largely bad. Despite intense differences of opinion
in Congress, there is a strong consensus that if the United States could simply reduce the
number of illegal immigrants in the country, either by converting them into legal
residents or deterring them at the border, U.S. economic welfare would be enhanced.
Is there any evidence to support these prevailing views? In terms of the economic
benefits and costs, is legal immigration really better than illegal immigration? What
should the United States as a country hope to achieve economically through its
immigration policies? Are the types of legislative proposals that Congress is considering
consistent with these goals?
This Council Special Report addresses the economic logic of the current high
levels of illegal immigration. The aim is not to provide a comprehensive review of all the
issues involved in immigration, particularly those related to homeland security. Rather, it
is to examine the costs, benefits, incentives, and disincentives of illegal immigration
within the boundaries of economic analysis. From a purely economic perspective, the
optimal immigration policy would admit individuals whose skills are in shortest supply
and whose tax contributions, net of the cost of public services they receive, are as large as
possible. Admitting immigrants in scarce occupations would yield the greatest increase in
U.S. incomes, regardless of the skill level of those immigrants. In the United States,
scarce workers would include not only highly educated individuals, such as the software
programmers and engineers employed by rapidly expanding technology industries, but
also low-skilled workers in construction, food preparation, and cleaning services, for
which the supply of U.S. native labor has been falling. In either case, the national labor
market for these workers is tight, in the sense that U.S. wages for these occupations are
high relative to wages abroad.
Of course, the aggregate economic consequences of immigration policy do not
account for other important considerations, including the impact of immigration on
national security, civil rights, or political life. Illegal immigration has obvious flaws.
Continuing high levels of illegal immigration may undermine the rule of law and weaken
the ability of the U.S. government to enforce labor-market regulations. There is an
understandable concern that massive illegal entry from Mexico heightens U.S. exposure
to international terrorism, although no terrorist activity to date has been tied to
individuals who snuck across the U.S.-Mexico border. Large inflows of illegal aliens
also relax the commitment of employers to U.S. labor-market institutions and create a
population of workers with limited upward mobility and an uncertain place in U.S.
society. These are obviously valid complaints that deserve a hearing in the debate on
immigration policy reform. However, within this debate we hear relatively little about the
actual magnitude of the costs and benefits associated with illegal immigration and how
they compare to those for legal inflows.
This analysis concludes that there is little evidence that legal immigration is
economically preferable to illegal immigration. In fact, illegal immigration responds to
market forces in ways that legal immigration does not. Illegal migrants tend to arrive in
larger numbers when the U.S. economy is booming (relative to Mexico and the Central
American countries that are the source of most illegal immigration to the United States)
and move to regions where job growth is strong. Legal immigration, in contrast, is
subject to arbitrary selection criteria and bureaucratic delays, which tend to disassociate
legal inflows from U.S. labor-market conditions.  Over the last half-century, there
appears to be little or no response of legal immigration to the U.S. unemployment rate. 
Two-thirds of legal permanent immigrants are admitted on the basis of having relatives in
the United States. Only by chance will the skills of these individuals match those most in
demand by U.S. industries. While the majority of temporary legal immigrants come to the
country at the invitation of a U.S. employer, the process of obtaining a visa is often
arduous and slow. Once here, temporary legal workers cannot easily move between jobs,
limiting their benefit to the U.S. economy.
There are many reasons to be concerned about rising levels of illegal immigration.
Yet, as Congress is again this year set to consider the biggest changes to immigration
laws in two decades, it is critical not to lose sight of the fact that illegal immigration has a
clear economic logic: It provides U.S. businesses with the types of workers they want,
when they want them, and where they want them. If policy reform succeeds in making
U.S. illegal immigrants more like legal immigrants, in terms of their skills, timing of
arrival, and occupational mobility, it is likely to lower rather than raise national welfare.
In their efforts to gain control over illegal immigration, Congress and the administration
need to be cautious that the economic costs do not outstrip the putative benefits.
1 Jeffrey S. Passel, "Estimates of the Size and Characteristics of the Undocumented Population," Pew
Hispanic Center, 2006. Estimates of the illegal immigrant population are imprecise. They are based on
comparing the actual number of immigrants (as enumerated in household population surveys) with the
number of immigrants admitted through legal means. The stock of illegal immigrants is taken to be the
difference between these two values (after accounting for mortality and return migration). See Jennifer Van
Hook, Weiwei Zhang, Frank D. Bean, and Jeffrey S. Passel, "Foreign-Born Emigration: A New Approach and
Estimates Based on Matched CPS Files," Demography, Vol. 43, No. 2 (May 2006), pp. 36182, for a
discussion of recent academic literature on estimation methods and on how existing estimates of the stock
of illegal immigrants may not fully account for emigration among this population.
2 See Samuel P. Huntington, Who Are We? The Challenges to America's National Identity (New York:
Simon and Schuster, 2004), and Patrick J. Buchanan, State of Emergency: The Third World Invasion and
Conquest of America (New York: Thomas Dunne, 2006).
3 According to Rep. Tom Tancredo (RCO), a leading congressional opponent of immigration, "There are
nine to eleven million illegal aliens living amongst us right now, who have never had a criminal
background check and have never been screened through any terrorism databases. Yet the political
leadership of this country seems to think that attacking terrorism overseas will allow us to ignore the
invitation our open borders presents to those who wish to strike us at home"
(http://www.house.gov/tancredo/Immigration/, accessed on October 31, 2006). Former presidential
candidate Pat Buchanan adds, "The enemy is already inside the gates. How many others among our eleven
million 'undocumented' immigrants are ready to carry out truck bombings, assassinations, sabotage,
skyjackings?" ("U.S. Pays the High Price of Empire," Los Angeles Times, September 18, 2001.) See also
Steven A. Camarota, The Open Door: How Militant Islamic Terrorists Entered and Remained in the United
States, Center for Immigration Studies Paper No. 21 (2002).
4 Susan Martin, "U.S. Employment-Based Admissions: Permanent and Temporary," Migration Policy
Institute Policy Brief No. 15 (January 2006).
5 James Hollifield and Valerie F. Hunt find that, over the period of 18911945, there is a negative
correlation between U.S. legal immigration and the U.S. unemployment rate, indicating that immigrant
inflows are larger when U.S. labor markets are tighter. After 1945, this relationship breaks down. See
James F. Hollifield and Valerie F. Hunt, "Immigrants, Markets, and Rights: The US as an Emerging
Migration State," paper prepared for presentation at the Migration Ethnicity Meeting (MEM) at IZA in
Bonn, Germany, May 1316, 2006.
From The Economic Logic of Illegal Immigration, Council on Foreign Relations Press (2007). Reprinted with permission.
About The Author
Gordon H. Hanson is the Director of the Center on Pacific Economies and Professor of Economics at the University of California, San Diego, where he holds faculty positions in the Graduate School of International Relations and Pacific Studies and the Department of Economics. To read the full text of this
article, please visit http://www.cfr.org/publication/12969/.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.
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