The Impact of Illegal Immigrants on the U.S Economy.

Almost every developed country in the world keeps on an eye on the number of illegal immigrants for various reasons. In the U.S., there are many illegal immigrants mainly coming from Mexico, China, and other developing countries. According to the Pew Hispanic Center’s estimation, the size of unauthorized immigrants increased from 3.5 to 11.7 million between 1990 and 2012. As the number of illegal immigrants have been significantly growing over time, it is important to understand its effect on the economy.


Before we go any further, it is crucial to know why it is important for economists to know the composition of skills of immigrants in order to examine the effect of illegal immigrants on the labor market. This is because illegal immigrants may affect relative wages for the entire workforce. For instance, wages of unskilled native workers would decrease if the supply of unskilled migrants increases dramatically. Many research papers about unauthorized immigrants in the U.S. show that illegal immigrants are mostly less educated people than native people. However, does it necessarily mean that illegal immigrants always exacerbate the U.S. economy?

Let’s begin with the negative economic effects that are occurred by illegal immigrants. We can start examining this question by assuming that most illegal immigrants are low-skilled workers. This is because it is unlikely that high skilled immigrants are undocumented workers since it is much easier for them to get working visas. Thus, increase in the supply of migrants mostly undercut wages and take jobs from low-skilled natives. In this case, low-skilled native-born workers only have two options, which are accepting lower pay or looking for other jobs. According to labor economists, their finding suggests that illegal immigrants have lowered the wages of native born workers without high school diploma by anywhere between 0.4 to 7.4 percent. In addition, the fiscal effect of a migrant is initially negative because most illegal immigrants work in low-pay jobs, hence pay little income tax and send their children to school. Thus, undocumented workers pay a little tax but receive great benefits from the welfare including education and other government services.

Illegal immigration, however, also has a positive impact on the U.S. economy. Some economists claim that illegal immigrants lower the wage of low-skilled natives born workers but Ottaviano and Peri’s findings suggest that the effect of the immigration on wages are as following:

  1. Wages of native high school dropouts decrease only by 1.1%
  2. On average the US born wages increase by 1.8%
  3. Foreign-born wages drop by 19.8%

These findings show that the effect of illegal immigrants on the native workers’ wage is not significantly negative but only lowers the wages of foreign-born workers. This implies that manufacturing companies can make their products at cheaper prices since their hiring costs decrease as well, meaning that the price of normal goods that are consumed by average U.S. citizens also go down. In addition, the fiscal effect of a migrant becomes positive as their earnings increase. Although the fiscal impact is initially negative, it becomes greater as their children become more educated, hence earning goes up. George Mason University economist Bryan Caplan writes, “Contrary to popular stereotypes, welfare states focus on the old, not the poor. Social Security and Medicare dwarf means-tested programs. Since immigrants tend to be young, they often end up supporting elderly natives rather than ‘milking the system.’ Illegal immigrants who pay taxes on fake Social Security numbers are pure profit for the Treasury. In 2005, Social Security’s chief actuary estimated that without all the taxes paid on invalid Social Security numbers, ‘the system’s long-term funding hole over 75 years would be 10 percent deeper”, claiming that illegal immigrants are not the economic burden to the U.S.




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