Labor Market Effects of Immigration Policies Border Enforcement and Amnesty

Abstract

We explore the effects of tighter border enforcement and an amnesty on the wages and unemployment rates of natives and immigrants. We extend the Mortensen-Pissarides labor market model to include individuals authorized to work and illegal workers in a framework that accounts for voluntary return migration. Furthermore, we study the effects of an amnesty when a proportion of illegal workers pays payroll taxes. Our results show that the effect of changes in border enforcement on the number of illegal workers in the United States is theoretically ambiguous. While tighter border enforcement deters illegal migration of prospective workers, it also changes the incentives of those already in the United States decreasing return migration. If tighter border enforcement increases the number of illegal workers in the economy, it will also increase the wages of natives as market tightness increases. Our findings show that the larger the proportion of illegal workers paying payroll taxes, the larger will be the decrease in wages, and the smaller the increase in unemployment generated by the decrease in the number of illegal workers in the economy that will follow an amnesty.