Coming Out of the Shadows: Learning about Legal Status and Wages From the Legalized Population

Abstract

In 1986, Congress passed the Immigration Reform and Control Act (IRCA) to reduce the incentives for unauthorized migration by eliminating U.S. employment opportunities for unauthorized workers. The General Legalization Program within IRCA granted amnesty to approximately 1.7 million long-term unauthorized workers to bring them out of the shadows and improve their labor market opportunities. An analysis of wages using panel data for a sample of legalized men provides evidence that wage determinants are structurally different after amnesty for them, but not for the comparison group measured during the same time periods. This suggests that changes are due to legalization rather than differences in macroeconomic conditions. These changes result from altered returns to human capital and continuing penalties for those who work in traditional migrant jobs. The penalty for being unauthorized begins with low entry wages and is compounded by slow wage growth during the unauthorized era. Legalized men experienced rapid wage growth after legalization. Benchmark estimates of the penalty to being unauthorized range from 14 percent to 24 percent. The wage benefit of legalization under IRCA was approximately 6 percent by 1992.