Illegal Immigration and Resource Allocation

Slobodan Djajic

No 94-04, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: This paper studies the effects of illegal immigration and the associated expansion of the underground economy on the allocation of resources, prices, and wages of workers, both in the short run (when occupationl mobility is restricted) and in the long run (when the skill-composition of the labor force is endogenous). The paper also examines the impact of illegal immigration on tax revenues of the government and the cost of providing each resident, legal or illegal, with a constant flow of public services. Finally, it considers the consequences of imposing tougher sanctions on employers who hire illegal aliens and of a policy legalizing the status of clandestine foreign workers.

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