Discussion Paper Series CDP No 06/13 inimum ages and the creation of illegal migration Gil S. pstein and Odelia Heizler (Cohen) Centre for Research and Analysis of igration Department of conomics, University College ondon Drayton House, 30 Gordon Street, ondon WC1H 0AX
inimum ages and the creation of illegal migration 1 Gil S. pstein Bar-lan University, CReA, ondon and ZA, Bonn and Odelia Heizler (Cohen) Department of conomics and anagement, Tel-Aviv-Yaffo Academic College and ZA, Bonn. January, 013 Abstract n this paper, e explore employers decisions regarding the employment of legal and illegal immigrants in the presence of endogenous adjustment cost, minimum ages and an enforcement budget. We sho that increasing the employment of legal foreign orkers ill increase the number of illegal immigrants hich ill replace the employment of the local population and thus creating illegal migration. Keyords: illegal immigration, foreign orker, minimum ages. J Codes: J3, K4 1 inancial support from the Adar oundation of the conomics Department of Bar-lan University is gratefully acknoledged.
1. ntroduction The literature on the importance of social netorks in the immigrant assimilation process is ell-established (Chisick and iller, 005; pstein and Gang, 006; Bauer et al., 007). Hoever, little is knon about the illegal (or undocumented) immigrants' social netorks: pstein (003) concluded that illegal immigrants are inclined to use social netorks created by previous immigrants more than legal immigrants. The reason is that illegal immigrants are subject to apprehension and deportation by the authorities, and therefore cannot find jobs as easily as legal immigrants. aria and evy (003) deduced that high skilled immigrants form social netorks, in the host country, hich facilitate subsequent illegal immigration. Using a dataset of undocumented exican migrants to the United States, Dolfin and Genicot (010) examined the effect of social netorks on illegal immigrant decisions to enter alone or ith the help of a border smuggler ("coyote"). They discovered that larger family netorks encourage the use of these smugglers. Devillanova (008) found that in taly, strong social ties increase health care use by undocumented immigrants. Table 1 presents the fifteen states ith the highest illegal alien populations, the illegal alien population in absolute numbers and as a share of population. t is easy to see that there is a positive relationship beteen the number of legal and illegal immigrants. or example, California leads the list of states ith the highest illegal alien populations as ell as those ith the highest legal aliens. With regard to Texas, lorida and Ne York head both lists, hereas Colorado and Nevada are located at the end of both lists. pstein and Heizler (008) examined employers decisions regarding the number of employed legal and illegal immigrants, assuming a constant immigrant adjustment cost and a minimum age scale. inimum ages play an essential role since they put limits on local orkers' and legal migrants' ages. Thus, under certain circumstances, the probability of employing illegal orkers is increased. The main goal of this paper is to shed light on the relationship beteen the number of legal and illegal migrants. We consider a model ith a minimum age scale and sho that, as the number of legal immigrants increase, the cost for illegal migrants to enter the country decreases and the capital oners incentive of to employ those illegal immigrants increases. Thus, as the number of legal permits increases, e see more illegal migrants
in the economy. Table 1 The relationship beteen legal and illegal migration in various states State Ranking by number of illegal immigrants llegal alien population (thousands legal immigrant share of population Ranking by number of legal immigrants egal alien population (thousands egal immigrant share of population California 1 840 8% 1 7303 1% Texas 170 7% 4 170 7% lorida 3 101 6% 3 478 15% Arizona 4 579 9% 1 31 5% Ne York 5 55 3% 3694 0% Georgia 6 504 5% 11 447 4% llinois 7 480 4% 6 134 10% Ne Jersey 8 49 5% 5 1436 17% North California 9 363 4% 15 63 3% Washington 10 77 4% 10 45 7% aryland 11 68 5% 9 456 9% Virginia 1 59 3% 8 604 7% assachuesetts 13 0 3% 7 660 9% Colorado 14 170 4% 14 66 6% Nevada 15 160 6% 13 97 11% Source: Center of mmigration Studies. mployers and Workers Decisions A similar relationship, beteen legal and illegal migration, as presented by pstein et al. (1999), in a model of contracted temporary migration under hich migrants enter the economy legally and have an incentive to overstay their visit even though illegally. 3
.1. The employer s decision Similar to pstein and Heizler (008), e consider a small open and competitive economy here the employers are risk-neutral and may employ local unskilled orkers,, legal foreign orkers,, or illegal foreign orkers,. The illegal orkers are perfect substitutes for the legal orkers. To protect local orkers, the government establishes a minimum age, (hich is higher than the age requested by foreign orkers and loer than, or equivalent to, the equilibrium age of a closed economy) for all orkers. oreover immigration la forbids employing foreign orkers ho lack ork permits. t is also assumed that illegal orkers ages, age earned by legal orkers, orker's equilibrium age,, are loer than the (belo e ill determine the foreign illegal ). t should be emphasized that, in our model, the employer pays a age hich is loer than minimum age only to illegal immigrants. 3 When an illegal orker is apprehended, he or she is expelled from the country, hile sanctions are implemented against the employer. t is assumed that there are identical employers in the economy and each is relatively small having no affect on the economy. As in pstein and Heizler (008), it is also assumed that an employer ho employs illegal immigrants may be detected and punished ith probability p. The policy-maker can regulate the probability of detection, p, by an (internal) enforcement budget,, i.e. ( ) p such that p p ' 0, '' 0. The penalty for employing illegal orkers depends on the number of illegal immigrants, (), such that ( 0) 0 and '( ) 0, ''( ) 0. 4 At the beginning of each period, the employer decides on the number of legal and illegal orkers to be employed. The representative employer s expected profit is given by: 3 n fact, there are some local orkers ho are illing to ork for a age similar to that of the illegal orkers. The employer prefers to pay a loer than minimum age to the illegal foreign orkers, because they are in the country illegally, and are therefore afraid to complain about their employers to the authorities. 4 ndeed, in many countries, the fine is constant for each employee, but hen marginal production decreases, then the apprehension of a orker increases the costs to the employer in a non-linear ay. n addition, the financial cost of the fine (for instance, the marginal interest) increases as the total fine increases. 4
V( N) p ( ) (1) s.t. N () here N is the number of unskilled orkers, N ( ) is the production function, hich satisfies '( N) 0, ' '( N) 0, and V is the product price. The representative employer determines the optimal number of orkers and illegal immigrants. Therefore in equilibrium the employer s decision becomes: V ) ( ) p ( (1 ) Since the firm is relatively small, it takes ages as given and has no affect on them. The first order conditions to determine the number of illegal migrants, legal migrants and local orkers is given by: V ' 0 V ' 0 V ' (3) V ' (4) V ' p ' 0 V ' p ' (5) Where N ( ) ( ) ( ) ( ) ', and ' N. Thus, since the minimum age is given to the firm,,, e obtain that the constraint hich faces the firm is: p ' 0 (6) 5
Denote the optimal number of illegal immigrants (hich satisfies equation 6) by *. At equilibrium, all of the employers behave like the representative employer. Thus, the number of illegal immigrants in the host country equals * multiplied by the number of firms (employers) in the economy,... The illegal immigrants decisions All of the immigrants, legal and illegal, are motivated by the earnings in the destination country relative to that in the source country and the costs of migration. These latter costs include the adjustment cost hich stems from living in an unfamiliar environment and moving costs (see, for example, Chisick, 1999; evine, 1999). Hoever, the illegal immigrant is subject to potential apprehension and deportation by the authorities and thus takes into consideration additional costs: the probability of being apprehended and deported, as ell the equilibrium age. olloing Todaro and aruszko (1987) and others, it is assumed that the age in the destination country is higher than the age in the source country, and that immigrants face adjustment costs and potential costs of apprehension. The potential immigrant ill therefore agree to immigrate illegally if the age received in the destination country,, is higher than the age in the source country, H, including the penalty (and losing income) if he/she is apprehended, p, and the adjustment costs (or moving costs) in the host country, c. The total number of legal immigrants is given by and the number of illegal immigrants is given by 1 p (since there is a probability of detection and thus deportation of p and is the number of firms in the economy). The adjustment costs may consist of a fixed cost and an additional cost hich depends negatively on the size of the minority group (see, Carrington et al., 1996; Bauer et al., 007). Namely, as the number of immigrants (both legal immigrants, and illegal immigrants, ) in the host country increases, the adjustment cost decreases. The adjustment costs can be ritten as follos: ( 1 p) c (1 p c c (7) ) 6
here c is a function of the number of immigrants and it holds that c 1 p 0. or example, c c c * (1 p) fixed cost for moving, satisfies c0 0 and c 1 <0. hile c 0, a 0 1 The employer pays the illegal immigrants the loest age they are illing to accept. Thus, the illegal immigrants age satisfies: c p (8) H Note that this condition is ritten in terms of one period of time. 5 3. quilibrium n our equilibrium, the enforcement budget is fixed and the age earned by the illegal migrants is a function of the number migrants in the economy. The single employer does not take this into consideration since he is one out of many firms. Hoever, in equilibrium it has an effect on the outcome. Plugging in (7) and (8) into (6) e obtain that the first order condition of the representative employer equals: c p p ' 0 H (9) et us no examine ho, in equilibrium a change in the number of legal immigrants affects *. Note, that in order to do this e take into consideration the first order condition of the employer together ith the reaction of the illegal immigrants. 5 or simplicity, e ignore the one-time moving cost. But it can be assumed that this cost is divided over the hole period. 7
Since d d * d dd and by the second order condition of the employer: d d d p ''( ) 0, t can be verified that: d d Sign d * d Sign dd (10) n equilibrium, e take into consideration the effect the number of legal immigrants has on the illegal immigrant. The local orker does not take this into consideration since each firm is an individual firm and is small relative to the market, hoever in equilibrium it has an effect on the total outcome. Thus, from equations (9), and (10), e obtain that in equilibrium: * d dc (1 p) Sign 0 d d (11) Thus, a positive relationship exists beteen the stock of foreign legal immigrants and the optimal quantity of illegal immigrants. As the number of legal immigrants increases, the adjustment cost of the illegal migrants decreases and the number of illegal migrants entering the economy increases. Thus, for a given enforcement budget,, in this setting, increasing the population of legal migrants ill increase the number of illegal migrants ishing to enter into the economy. These immigrants ill be employed instead of the local population, increasing unemployment. t should be noted that if the employer is a monopsony, then he or she takes into account the effect of his/her decision on equilibrium. n this case, the employer may prefer employing legal immigrants instead of natives. mploying legal immigrants ill create ethnic social netorks hich ill enable him/her to employ more illegal immigrants. 8
The result regarding the positive relationship beteen the number of legal and illegal immigrants has policy implications. n the case here a government (regulator) ishes to decrease illegal migrants it can decrease the permits for legal immigrants. Hoever, if it ishes to increase the employment of legal immigrants then increasing the number of permits for legal immigrants it should understand that such an increase ill bring about an increase in illegal immigrants. The government (regulator) can determine the folloing steps to curtail the increase in illegal immigrants: The enforcement budget can be increased thus increasing the number of illegal migrants apprehended and deported. Second, it can increase the penalty of for employing illegal immigrants and by doing so increase the cost of employing illegal migrants. inally, it can decrease the minimum age in the economy. Decreasing the minimum age ill decrease the demand for illegal migrants and decrease the employment of the illegal migrants and the illingness of the migrants to enter the host country. 9
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