Three Essays on Illegal Immigration - University of Pittsburgh

THREE ESSAYS ON ILLEGAL IMMIGRATION

by Sandra Leticia Orozco Alem?n B.A. Instituto Tecnol?gico Aut?nomo de M?xico, 2000

Submitted to the Graduate Faculty of the School of Arts and Sciences in partial ful...llment

of the requirements for the degree of Doctor of Philosophy

University of Pittsburgh 2011

UNIVERSITY OF PITTSBURGH SCHOOL OF ARTS AND SCIENCES

This dissertation was presented by

Sandra Leticia Orozco Alem?n It was defended on April 27th, 2011 and approved by

Daniele Coen-Pirani, Department of Economics, University of Pittsburgh Marie Connolly, Department of Economics, Chatham University

Mark Hoekstra, Department of Economics, University of Pittsburgh Alexis Le?n, Department of Economics, University of Pittsburgh

Randall Walsh, Department of Economics, University of Pittsburgh Dissertation Advisors: Daniele Coen-Pirani, Department of Economics, University of

Pittsburgh, Randall Walsh, Department of Economics, University of Pittsburgh

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THREE ESSAYS ON ILLEGAL IMMIGRATION

Sandra Leticia Orozco Alem?n, PhD

University of Pittsburgh, 2011

This dissertation consists of three essays studying illegal immigration in the United States. In the ...rst chapter I extend the standard Mortensen-Pissarides labor market model to study the e?ect of two immigration policies, an amnesty and tighter border enforcement, on the wages and unemployment rates of US natives and Mexican immigrants. A key ...nding of this paper is that natives might bene...t from the presence of illegal workers in the economy. The presence of illegal workers increases ...rms'incentives to open vacancies, which increases the wages of natives and decreases their unemployment rate. Moreover, this paper also shows that the e?ect of border enforcement on the number of illegal workers in the US is ambiguous. Tighter border enforcement deters illegal migration of prospective workers, but decreases return migration.

In the second chapter I estimate the e?ect of legal status on the wages of immigrants using Mexico's Survey of Migration to the Northern Border. I control for possible selection biases and test for selectivity in the population obtaining legal status. The analysis shows that legal workers earn higher wages than illegal workers, especially those working in the production and services sectors. Moreover, within sectors the wage gap varies by occupation, and is larger among individuals working in formal jobs. The results show that once we control for observable characteristics, there is no evidence of selectivity among Mexican workers obtaining legal status.

In the third chapter I study return migration and test Borjas and Bratsberg's (1996) prediction that the return migration process further accentuates the type of selection observed among immigrants moving from Mexico to the US. I use data from the Survey of Migration

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to the Northern Border together with a selection model to infer the unobservable skills of Mexican immigrants and the unexpected component of their earnings in the US. The results show that immigrants are negatively selected relative to the Mexican population. Consistent with Borjas and Bratsberg's prediction, return migrants are relatively more skilled than the typical immigrant. Moreover, workers who face more negative unexpected conditions in the US are those who ...nd it optimal to return to Mexico.

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TABLE OF CONTENTS

PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi 1.0 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.0 LABOR MARKET EFFECTS OF IMMIGRATION POLICIES . . . . 4

2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.1.1 Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2.2 Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.2.1 Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.2.2 Workers in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.2.3 Workers in the U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.2.4 Workers'Value Functions . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.2.5 Firms'Value Functions . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2.6 Match Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.2.7 Wage Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.2.8 Equilibrium Steady State . . . . . . . . . . . . . . . . . . . . . . . . . 14

2.3 Discussion of the E?ects of Policies . . . . . . . . . . . . . . . . . . . . . . . 15 2.3.1 E?ects of an Amnesty . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.3.2 E?ects of an Increase in Border Enforcement . . . . . . . . . . . . . . 16

2.4 Quantitative Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.4.1 Results: E?ect of an Amnesty . . . . . . . . . . . . . . . . . . . . . . 20 2.4.2 Results: E?ect of Tighter Border Enforcement . . . . . . . . . . . . . 22

2.5 Model with Illegal Workers Paying Payroll Taxes . . . . . . . . . . . . . . . 24 2.5.1 Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

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