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Effects of Legal and Illegal Immigration on Microeconomics

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  • Scott Mundy

There are many effects of legal and illegal immigration and how it effects today’s economy. There are many views on how immigration is effecting the way the United States economy is hurt, and is prosperous depending on which political party you ask. The effects of immigration isn’t such an easy thing to determine. It can take years of study and there can be other things that can contribute to how the effects of immigration are on the economy.

There are basically two types of immigration. The types of immigrants are legal immigrants and illegal immigrants. Legal immigrants are those who arrive in this country and are authorized to be in the US. They have visas to go to school, or to work in the U.S. for a certain amount of time. Illegal immigrants come into the country illegally, or enter on temporary visas and then don’t leave when they are supposed to. There currently is an average of 10,000 illegal aliens (see Appendix A) that cross the border every day, over 3 million a year (Camarota, 2009). The education levels of these immigrants may vary. Studies show that 35-40% of illegal immigrants come from Mexico and Central America. These immigrants usually have limited education, and speak limited English (Passel, 2005). About 25% of the immigration comes from countries like China which are highly skilled. When people move into an area, whether they are legal immigrants or illegal immigrants, it should make for more consumers, and potential workers (Rector, Kim, and Watkins, 2007). There is opportunity for jobs in the economy.

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There’s currently an immigration reform act that the United States is waiting on the government to vote, pass, veto or have the President go around the process to use an executive order. The Democrats for the most part, believe that immigration strengthens the economy, and is seeing citizenship for those who qualify. The citizenship would pave the way for undocumented immigrants to become citizens if they learn English, which would include immigrants that were brought to the U.S. as children. The Democrats want the immigration act to have restrictions. The laws need to be enforced for those who are illegally here. There would be punishment for the companies that would continue to hire and use illegal immigrants. There is also strengthening of the borders.

“We strengthened security at the borders so that we could finally stem the tide of illegal immigrants. We put more boots on the ground on the southern border than at any time in our history. And today, illegal crossings are down nearly 80 percent from their peak in 2000.” (Obama, 2013). More personnel on the ground at the borders will lead to less activity at the border and more jobs which also will help the economy. “Today, the Border Patrol is better staffed than ever before, having doubled the number of agents from approximately 10,000 in 2004 to more than 21,000 in 2011.” (Schneider, 2014)

The Republicans believe immigrants are a burden on the U.S. Republicans believe that illegal immigrants are taking jobs, housing, and health care away from U.S. born citizens. The Republicans are not for citizenship, but are in favor of immigrants that maintain a legal status. To have a legal status, you need to speak English. Immigrants must also attend a University and graduate in a science, technology, engineering or math field. The U.S. would then encourage these graduates to remain in the U.S. and stay as a permanent legal status. There would no amnesty for immigrants that are currently in the U.S. Businesses would also have to use E verify (a free service that compares information from an employee’s Form I-9 to data from the U.S. government records) to verify if an employee is in a legal status to work in the U.S. These are two separate views which are currently at battle between the Democrats and Republicans. Americans want an action taken, but at this point it is a chess match between political parties that we will need to sit back and wait for the result.

Immigrants come to the United States for a couple of reasons. The country they are coming from is inferior economically, and immigrants will come to the U.S. for the superior economics. The more you work, the more you make. The earning opportunities are much greater in the U.S. Immigrants will make more money compared to other countries. They come secondly to escape political or religious prosecution. The United States has long been the world’s leading country of refuge, providing protection to victims of political, ethnic, and religious asylum (Hipsman, 2013) The other main reason they come to the U.S. is to reunite with family that has already come to the U.S. either through visa’s or illegally.

There is an income impact from immigration. The demand for labor here in the U.S. is more than most countries. The reason is that the United States has a better infrastructure that enhances the production of labor. The U.S. also has better and advanced technologies that offer better job opportunities. If you take a country like Mexico, you can compare their demand for labor to the U.S. The demand for labor is much weaker in lesser developed countries then it is in the U.S. Technologies are less advanced, infrastructure is less developed. Machinery and equipment is more abundant in the U.S. than it is in Mexico and less developed countries.

Although we can specify income gains and losses to domestic born workers, we cannot say what will happen to the total wage income in each country. This will depend on the elasticity of labor demand. The example for this is that demand is elastic, the wage decreased in the U.S. will increase total wage income. The opposite of this would be if the labor demand is inelastic, the same wage decrease will cause total wage income to fall (McConnell, Brue and Flynn, 2013).

With the influx of immigrants there are some issues that come from it. Living in a border state to Mexico, you can see the illegal immigration first hand. When illegal immigrants are used for labor that others won’t do, they are paid cash for their services. There is a stigma for a lot of U.S. lower class individuals who won’t take these lower paying jobs. They complain that the jobs don’t pay enough, or is menial work, but will be the first to complain when the immigrants are taking these jobs. Illegal immigrants will gladly do those jobs in order to provide for their families. The money they make in the U.S. is much greater than they would have made in their own country.

The opposing thought to that is that low skilled Americans lose up to 50% of wages because of those jobs given to illegal immigrants. How immigrants impact the wages of people who are born U.S. workers would depend on whether they compete for the same jobs, or do they actually complement each other. People that are not able to get jobs because of the illegal immigration that are now losing wages are now needing welfare and other assistance to survive.

This brings about the effects of immigration on the U.S. tax system and the misconception of paying taxes. Most believe that illegal immigrants do not pay taxes for working under the table. Studies show that in reality most immigrants do pay federal and state taxes because they do live in the United States. Immigrants pay taxes, in the form of income, property, sales, and taxes at the federal and state level. As far as income tax payments go, sources vary in their accounts, but a range of studies find that immigrants pay between $90 and $140 billion a year in federal, state, and local taxes (Anchondo, 2008). Undocumented immigrants pay income taxes as well, as evidenced by the Social Security Administration’s “suspense file” (taxes that cannot be matched to workers’ names and social security numbers), which grew by $20 billion between 1990 and 1998.” There is no real way to track who pays and who doesn’t do to the fact there is no clear cut way to see who cheats the system and doesn’t pay taxes. With the increase in illegal immigrants, there is also a need for government funded services like welfare, education, Medicare and also the amount the average taxpayer will pay.

There are always going to be winners and losers in the battle for immigration. When people from Mexico enter into the U.S., the Mexicans get increase in wages compared to what they would get in Mexico. This also increases the output of the U.S. The work done by the person from Mexico in the U.S. will decrease the output from Mexico. If you decrease the wage rate in the U.S. it will also reduce the wage income of the Native born U.S. workers. The decreased wage rate wouldn’t effect the immigrants as much because it is still more than they would make in their country they left.

There are ways to help curtail the immigration issues and the loss of money, jobs and increase in taxes. The quota of letting legal immigrants into the U.S. could be curtailed. The U.S. government encourages a high level of legal immigration through the high quotas. The quota at this time is to allow 65,000 high skilled workers in specialty occupations to enter in the U.S. and work continuously for 6 years. These are high tech workers, scientists and professors. The quota could be cut in half to ensure that more jobs are available for U.S. born citizens. This would help keep highly educated U.S. persons within the U.S. for jobs, and also allow highly educated individuals from other countries the opportunity to venture here for jobs. We don’t want what is called a “brain drain”.

There are also policies that can be put in place to help the negative impact of illegal immigrants in the United States. There are three main changes in policies that might reduce or eliminate the fiscal costs of illegal immigration (Camarota, 2004). One set of options is to allow illegal aliens to remain in the country, but attempt to reduce the costs they impose. A second set of options would be to grant them legal status as a way of increasing the taxes they pay. A third option would be to enforce the law and reduce the size of illegal population and with it costs of illegal immigration.

All three options would be difficult to impose. To reduce the cost illegal immigrants impose would be difficult because they already have households here in the United States and programs that they already use, such as WIC (women infants and children) nutrition program couldn’t be cut. There are also costs that are incurred from the criminal justice system. As illegal immigrants are jailed for crimes they commit in the United States (see Appendix B), it will cost the U.S. to try them. Granting illegal immigrant’s amnesty would increase tax revenue. This would also allow the illegal aliens access to even more programs that they are currently unable to participate in.

One option is to enforce the laws already in place and reduce the number of illegal immigrants that we allow into the United States. This would increase jobs for U.S. born citizens as there would be an increase in jobs for people to work on the borders (Mexico and Canada). That would be for people guarding the border, and for the technology and walls needed to keep illegal immigrants from coming across the border. This would also mean making sure that those on temporary work visa’s don’t stay in the United States permanently. The main thing that would help this process would be to enforce people not to hire illegal immigrants. A program would need to be in place to ensure new hires are authorized to work in the U.S. Those companies who want to hire these illegal immigrants would receive heavy fines.

Any way you look at it, it will cost money. It is just like health care. If you want to change the way we do business, it will always cost money to improve what we have, or overhaul the whole program. The cost of illegal immigration to the federal government alone is estimated at over 10 billion a year (Camarota, 2004) Enforcement of the laws reduces costs, but it is popular with most people in the public.

There are two ways to look at it. If we are to curtail the illegal immigration in the United States we are going to have to work as a nation to enforce policies to ensure that United States citizen’s jobs and wages are kept intact

The other way is to educate and train those illegal immigrants, and make them U.S. citizens. “There are studies that show educating and training immigrants will increase GDP, increase the income of all Americans, increase taxes paid by undocumented immigrants, and increase jobs annually” (Oakford, 2013) (Appendix C).

I think in the end what it comes down to is what would you do? What if you were on the other side of the border and you couldn’t get a work visa, and you couldn’t come across legally to work in the United States? Would you cross the border? Would you do what needed to be done to make sure your family was taken care of? We are privileged to be born in a country with so many opportunities and have a lot of advantages that other countries don’t have. There are ways to go about legally coming to this country to work and better your livelihood. Some people won’t make the quota to get into the country or not be technically proficient, or just smart enough to be able to work in the United States. If those opportunities weren’t available, how many of us would say we wouldn’t do the same thing. I think a lot of us would do whatever it took to ensure our families were taken care of. With policies in place to educate and train illegal immigrants, the work force would be improved, and the opportunities for immigrants to be here legally would be in place. (Update): Now that President Obama has now decided to take an executive order to attempt to push through the immigration issues that the United States is currently having, changes are about to happen, but at what cost. The executive order was meant for things like National Parks, or making a National Holiday. It was never meant to push through a law that would effect millions of immigrants, and the United States as a whole. Only time will tell what the effects will be on the economy.

Appendix A


Appendix B



Appendix C



Camarota, Steven (2004, August) Center for Immigration Studies

Retrieved from http://www.cis.org/High-Cost-of-Cheap-Labor

Camarota, Steven (2009, August) Economic costs of legal and illegal immigration-Colorado

Alliance for Immigration

Retrieved from http://www.cairco.org/issues/economic-costs-immigration

Hipsman, Faye (2013, April 16) Migration Information Source

Retrieved from migrationpolicy.org/article/immigration-united-states-new-economic-social-political-landscapes-legislative-reform

McConnell, Brue, and Flynn (2013) Microeconomics: Principles, Problems, and Policies. Retrieved from https://www.inkling.com/read/microeconomics-campbell-mcconnell-


Oakford, Patrick, and Lynch, Robert ( 2013, March 20) Center for American Progress Retrieved from https://www.americanprogress.org/issues/immigration/report/2013/03/20/

57351/the-economic-effects-of- granting-legal-status-and-citizenship-to-undocumented-immigrants/

Passel, Jeffrey (2005, March, 21) Estimates of the Size and Characteristics of the Undocumented


Retrieved from pewhispanic.org/files/reports/44.pdf

President Obama (2013, January 29) Continuing to Strengthen Border Security

Retrieved from https://www.whithouse.gove/issues/immigration

Rector, Kim, and Watkins (2007, April) The Fisccost of low skill households to the us taxpayer

Retrieved from heritage.org/research/reports/2007/04/the-fiscal-cost-of-low-skill-househoulds-to-the-us-taxpayer

Schneider, Jane (17 November 2014) The Zoo, The Watering Hole

Retrieved from tpzoo.wordpress.com/2014/11/17/the-watering-hole-Monday-november-17th-2014-mixed-bag/



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