Illegal immigrants and the labour market

There is a frequent tendency to see illegal immigration and the underground economy as being one and the same. There is also a tendency to see controlling migration flows as being the solution to both. These views are misleading.  

Now that the debate on the immigration policies of OECD countries has turned its attention towards illegal migrants, policy-makers should be particularly careful. For rather than concentrate solely on the status of legality itself and the physical controls that might be adopted to regulate undocumented migrants, it makes sense to take a hard look at the real economic implications of clandestine migration. Does illegal immigration help the underground economy? Who really benefits from the employment of undocumented migrants? And to what extent does their employment affect the recruitment and wages of nationals?

To answer these questions, it would help to know how illegal immigration is actually defined. The spectrum is very wide. For apart from those who enter countries illegally, many migrants enter countries illegally, many migrants enter a country quite legally but overstay their visas or fail to get their permits renewed. Also in this group are the seasonal workers who fail to return home when their contracts expire and rejected asylum seekers.

Where illegal migration begins and ends is a matter for each sovereign state to define. And it is through the rule of law – with its gaps – that the state imposes restrictions on entering and leaving a country, and establishes the legal conditions governing access to the labour market. There can be no such thing as illegal immigration unless restrictions and a degree of tolerance exist simultaneously. In countries that remain broadly open to immigration, like the United States and Canada, illegal entry appears as one option to would-be immigrants. Where countries are more restrictive – as in Europe today – it is the only option, except for those applying for asylum or family reunification.

Length of stay plays a defining role too. A migrant may be legal one day and illegal the next. For many migrants, illegality may just be a provisional situation on the way to achieving legal status. In France during the 1960s illegal migrants holding a work contract could have their situations regularised and obtain a work permit. But illegality may be a permanent status too, either because authorisation has not been obtained or because when it was granted, as has recently been the case in countries like Greece, Italy, Portugal and Spain, it was done so on a one-off, non-renewable basis.

An examination of undocumented migration should not be confined to the migrants alone. Rather, one has to deal with complex networks, labour trafficking channels whose organisations may be very large indeed. In 1998 the US Immigration and Naturalization Service dismantled an organisation that had smuggled in some 10,000 workers. That same year, two million forged identify papers were seized in Los Angeles.

The extreme diversity of illegal immigration means that hard and fast judgements about the humanitarian or criminal aspects of migration are impossible to make. It also makes it hard to estimate the number of illegal migrants with any accuracy. Some OECD countries publish official figures for unauthorised immigrants. They are estimated at between 4 and 5 million in the United States, which is about 1.5% of the population, and about 300,000 in Greece (3%) and Italy (0.5%). Yet, estimating the clandestine population is a delicate exercise, involving problems of legal definitions and statistical methods. Numerous assessments are made, however. But many of these are just “guesstimates” which cannot be relied upon as statistical tools in proper scientific investigation. If the political climate is one of concern, they might be deliberately overstated, usually during election run-ups or by xenophobic interests. They might also be distorted to assuage the public and to maintain the credibility of immigration control policies. In any case, such rough estimates cannot be equated with the difficult, and imperfect, endeavours at statistical measurement using the procedures of scientific investigation.

Employer’s privilege

Being illegal is seldom the migrant’s deliberate choice. When the opportunity to get authorisation occurs, most of those meeting the criteria are only too eager to file an application. In fact, the advantages of illegal migration tend mostly to be on the side of the employer. An employer will benefit from the illegal status of a migrant who is desperate for work and therefore prepared to accept poor pay, usually below local norms. Hiring an illegal worker also brings the employer the advantage of paying less in the way of welfare contributions and other non-wage costs. The “welfare magnet” of illegal immigration is much stronger for the employer than for the worker, whose precarious situation and low bargaining power makes him highly vulnerable to discriminatory practices in the form of longer hours and non-payment of various bonuses, or even of wages.

For many undocumented immigrants, the underground economy is the only means of finding a job. But that does not mean that unauthorised foreign workers are the reason why the underground economy exists. To explain that, one can cite a range of causes, from institutional rigidities in the formal sector, such as heavy taxes and work hour restrictions. Social attitudes are also a factor. Some countries, such as in southern Europe, appear more tolerant of large informal sectors than, say, Scandinavian countries. Nevertheless, it is true that the existence of the underground economy increases the opportunities for employment of unauthorised migrants, particularly if trafficking networks are operating too.

So what of pay, does illegal immigration have a direct effect on that too? Perhaps not. A study by Douglas Massey of four Mexican communities observed in the United States and Mexico shows that an illegal status is not necessarily a reason for lower pay in itself, but rather it has an indirect influence. Its association with breaks or short periods of stay, as well as the tendency of illegal migrants to confine their job search to lowly paid sectors, depresses pay levels for illegal and legal migrants alike. In France during the 1960s, when periodic regularisation rounds took place, employers applied a strategy involving both categories of labour. They directly hired foreigners awaiting authorisation already present in France, and if these were not enough to fill their labour requirements, they recruited legal immigrants too. The risks run by the employers were limited, since the illegal migrants soon obtained the authorisation they needed. But the legal system of recruitment with its sometimes lengthy formalities was bypassed and immigrants accepted the first job offered, usually at the bottom of the pay scale. Once they had their legal papers in order, they sometimes had less difficulty, in a context of strong industrial growth and labour scarcity, climbing up to better paid jobs than even their legal counterparts, whose work contracts tied them to the minimum wage.

Crowding out the locals

The question of the effects of illegal immigration on wages and employment of society’s most vulnerable workers is an extremely delicate one. Take the minimum wage for instance. Raising it – or other forms of guaranteed income – may in fact act as a spur to illegal migration, since the higher minimum wage payable to nationals increases the attraction to employers of hiring illegal immigrants. This crowding out affects legal immigrants and national low-wage earners alike, compromising their work-related advantages and undermining their job security, particularly when unemployment is high. It is precisely the kind of argument used in support of policies to limit recruitment of new immigrants.

The question of competition in the labour market has to be linked with the social cost of illegal immigration. In the fiscal context, undocumented foreign workers and their families cannot be said to be a drain on national budgets, on the contrary. The only true cost associated with illegality is that of services provided regardless of status, such as schooling. But the contention that free welfare services are an inducement to illegal immigration is debatable, mainly because in most countries illegal immigrants cannot easily access those services. Nor can illegal immigration be held accountable for all the costs associated with controlling border flows. In short, for illegal immigration to be a burden on the nation’s finances, the cost of flow control would have to exceed the balance of fiscal and social expenditure and revenue – a highly unlikely result.

The truth is that labour market studies have so far failed to identify and incorporate what is specific to illegal migration as a subject of economic analysis. That is probably why most studies on illegal migration, particularly in the United States, end up equating employment of illegal migrants with that of unskilled migrants. The difference between the two groups does suggest that policy-makers dealing with the question should be more concerned about the effect illegal immigrants have on wages and the labour market, rather than concentrating on controlling their undocumented status per se. END


Delaunay, D. and Tapinos, G., La mesure de la migration clandestine en Europe. Vol.1: Rapport de synthčse, Eurostat Working Paper, March 1998.

ŹHanson, G.H. and Spilimbergo, A., Illegal Immigration, Border Enforcement, and Relative Wages: Evidence from Apprehension at the U.S.-Mexico Border, NBER Working Paper No. 5592, May 1996.

ŹMassey, D, “Do undocumented migrants earn lower wages than legal immigrants? New evidence from Mexico”, International Migration Review Vol. XXI, No. 2, 1987, pp. 236-274.

ŹMoulier Boutang, Y., Garson, JP. and Silberman, R., Economie politique des migrations clandestines de main-d’oeuvre, Publisud, Paris 1986.

ŹOECD, Combating the Employment of Illegal Immigrant Workers (Proceedings of the seminar at The Hague), FORTHCOMING, March 2000.

©OECD Observer No 219, December 1999

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