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Illegal Immigrants and Its Impact on Economy


Illegal immigration is a contentious subject of debate in many countries such as the United States, Canada, and Australia which were traditionally known as receivers and also in Europe which historically had net emigration. The debate over the effect of immigration and its effect is mostly drawn on economic lines. One of the most important arguments is that immigrants will adversely affect the native-born labour market, dislocating them of employment or bidding down the wage level. But all these arguments pay less attention to the benefits of immigration increasing the overall welfare of the society and positively affecting the growth per capita income. But this effect depends on the circumstances of the receiving country and the characteristics of the immigrants (Friedberg and Hunt; Gott and Johnston; Storesletten). Research has further proven that theoretical and empirical evidence proves otherwise, that immigration does not have any significant reductions on native employment. So the argument against immigration does not hold true in present research scenario.

So the argument come to the point where policy matters becomes imperative. Should illegal immigration be legalized? This is a policy issue which will depend on the affect immigration has on the economic, social and political environment of the country. This paper aims to understand the effect immigration has on the economy, society and politics of the country and if legalization will solve or escalate the problems that illegal immigration poses to the nation.


Friedberg and Hunt (1995) did a meta analysis of the empirical and theoretical studies of economic effect of immigration in a country. He studied the researches that studied effect of immigrants on the income growth and labor market outcomes of natives in the United States. Their study found that a most of the empirical studies showed that a 10 percent increase in immigration reduced the native wage rate by only 1 percent (Friedberg and Hunt). Even those natives whose works e direct substitutes with that of the immigrants do not seem to have undergone significant suffering. The theoretical studies on the immgration effect have shown that the true nature of economic effect of immigrants in a country depends on the human capital level of the immigrants.

The policy implications of immigration are an imperative question for all immigration studies. Storesletten (1998) studied the effect of illegal immigration on the United States. He argues that an immigration policy has become an important source of government revenue, especially in terms of skills, age at time of arrival, etc. Should be used while doing a cost-benefit analysis of immigration:

…the analysis suggests that the discounted net government gain varies considerably across age and skills of new immigrants, with large and positive figures for high- and medium-skilled working age immigrants. Thus, rather than viewing immigration as a problem, the perspective should be one of seeing high and middle skilled immigrants as an attractive resource for which various countries compete.” (Storesletten 27)

Gott and Johnston (2002) studied the fiscal effect on first generation immigrants in the UK. Their study showed that that the immigrants presently in UK are not a burden on UK taxpayers. On the contrary, they make positive fiscal contribution to the country. The study also demonstrated that the nature of immigrants entering the country is a main factor in determining the level of contribution on the economy. The study found that “age, economic activity, skills and qualifications, and route of entry” play a crucial role in determining the impact on fiscal outcome (25). They found that migrants with high level of education, who have higher probability of attaining high income employment, are more likely to generate fiscal gains.

There are two arguments supporting legalization of immigration in most countries: first, recent studies have shown immigration, especially for high level of skilled and educated immigrants, there is an increase in income growth of the country, and the other is the negative effect of immigration can be regulated and to a great extent reduced due to legalized (Schmitt). But many countries especially the UK have called such a policy ‘amnesty’ (Swarns).

As in case of the United States, the number of unauthorized immigration has increased consistently. There has been an increase in the number of immigrant population in the country. In 200 it was at 8.5 million which increased to 11.8 million in 2007 (Hoefer, Rytina and Baker). Legal immigration, on the other hand has undergone varied increase or decrease. As figure 1 in the appendix shows, the number of immigrants who enter the US legally is less than that of the unauthorized immigrants. The immigrant population in the US in 2007 had a larger share of foreign born population in 25 to 54 years old (76.4 percent) in the workforce than the native born (66.6 percent) population (United States Department of Labor ), where labour force participation is highest in that age group. But in terms of the quality of employment, more native population was engaged in management, professional, and related occupations (37 percent) than foreign born population (27.2 percent). Further, there was a wage gap in foreign born population than that of native born population where the latter got more. This shows that there is wage differential but the native worker is not affected by lowering of the wage.


Another conclusion that can be made is that because more foreign born workers are engaged in the workforce they have fiscal contribution.

Review of theoretical and empirical literature shows that immigration is not a burden to the national economy. The study demonstrates that immigration in the country has increased over the years, but the quality of immigration has increased too. More immigrants are in the working age than the natives. So they contribute more to the economy for they increase productivity. Further, as illegal immigrants are more than legal immigrants, this can be said that if the illegal immigrants are legalized their productive contribution to the economy will also be beneficial to the nation.


Friedberg, Rachel M. and Jennifer Hunt. “Impact of Immigrants on Host Country Wages, Employment and Growth.” The Journal of Economic Perspectives vol. 9, no. 2 (1995): 23-44.

Gott, Ceri and Karl Johnston. The migrant population in the UK: fiscal effects. RDS Occasional Paper No 77. London: Home Office Research, Development and Statistics Directorate, 2002.

Hoefer, Michael, Nancy Rytina and Bryan C. Baker. “Estimates of the Unauthorized Immigrant Population Residing in the United States: 2007.” Web.

Schmitt, Eric. “Ideas & Trends: Open Door, Open Questions; This Way Up.” 2001. The New York Times. Web.

Storesletten, Kjetil. “Sustaining Fiscal Policy Through Immigration.” Seminar Paper No. 4. Stockholm, Sweden: Institue of Internations Economics Studies, Stockholm University, 1998. 1-41.

Swarns, Rachel L. “House Negotiator Calls Senate Immigration Bill ‘Amnesty’ and Rejects It.” 2006. The New York Times. Web.

United States Department of Labor. “FOREIGN-BORN WORKERS: LABOR FORCE CHARACTERISTICS IN 2007.” Web.


Figure 1
Figure 1

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