The challenges of being a migrant do not end with entry into the US.

For those migrants who are already present in the US, status issues are a primary concern.  These reflect the inability to function properly owing to a lack of legal status, including difficulties in obtaining a driver's license or legal work, renting a dwelling, obtaining a phone, and other similar constraints.  This category also includes the risk of deportation, about 2% / year from the interior of the US, and the stress of being unable to be with relatives and friends who have stayed behind in Mexico or Central America.  Our analysis puts these costs, all in, adjusted for risk and demographics, at about $1.00 / hour of labor.   

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Wage Risks are a type of status risk, but they represent the specific probability of being underpaid agreed wages by an employer.  This seems to be a material risk facing migrants in the US.  Unscrupulous employers, it seems, capture about as much of the value of illegal immigration as do migrants themselves.  We estimate this cost at $1.00 / hour of labor on average.

Utilization Risks revolve around the cost of being unemployed but trapped in the US.  Perversely, tight border control will tend to increase the resident population of illegal migrants, because once a migrant has returned to Mexico, coming back to the US may prove daunting.  Therefore, those who are in the US will tend to stay in the US, even if they would prefer to go back to Mexico. As with wage risks, utilizaton risks also seem to be a major cost item statistically.  For example, a large number of those employed in seasonal work would likely leave the US if they knew they could return on demand.  We believe this might affect 1.0-1.5 m, typically unaccompanied men.

We estimate utilization risks, allocated across the entire working migrant population on an annual basis, at $1.20 / working hour.  This reflects a loss of income during the winter months, on the one hand, and an inability to reduce daily costs by going back to Mexico, on the other.  

All these costs together, on an annualized risk-adjusted basis, amount to about $3.20 / working hour, or about one-third of the typical wages which Mexicans and Central Americans might otherwise receive in the United States.

Of course, these costs are not evenly distributed across the migrant population.  Black markets by their nature deliver extremes: death, kidnapping and forced prostitution for those who fail, and solid wages for those who succeed.  Illegal immigrants with good employers and year-round work may find their situation relatively satisfactory.  Those who face sporadic or seasonal employment, and are unluckly enough to sign with unscrupulous employers, may find that their gamble to come to the US has not paid off, and even so are unable to leave the country, for fear of never being able to return.

With our estimate of costs, we can begin to compile a view of the economics of illegal immigration from the migrant's perspective.

In Mexico, unskilled labor commands a wage of $2-3 / hour.  In US, unskilled labor earns around $10 / hour.  The cost of living in the US is higher, though, by about $2.50 / hour.  To induce Mexicans to work in the US, American wages would have to cover this cost of living differential, and also a relocation premium. A relocation premium is necessary to induce a worker to leave their home market.  After all, why would a Mexican come to the US to earn net as much as he could in Mexico?  That worker will require a relocation premium, which we estimate at $1.50 / hour, or about 2/3 of the Mexican wage level.

These three elements suggest that unskilled Mexicans would come to the US for a wage of about $6.50 / hour-- and indeed, our analysis suggests that is about as much as they earn on average.  The remaining differential to US wages of about $3.50 / hour is lost to deadweight and predation costs, including status, wage and utilization risks.  About two-thirds of these costs are deadweight costs in the sense that they are lost income to both migrants and the United States more broadly.  The remaining $1 / hour is captured by unscrupulous US employers, which is wages lost to migrants but gained by some US entities.

Illegal Migrant Economics - Current and Under a Proposed Market-based Immigration System

Illegal Migrant Economics - Current and Under a Proposed Market-based Immigration System

Under a market-based immigration plan, deadweight and predation costs would essentially be captured by the US government in a visa fee.  In such a system, about two-thirds of the gain would  come from recovered deadweight costs, and about $1 / hour would represent an effective tax on unscrupulous US employers.

In a market-based system, of course, the benefit of migrating to a visa fee system would be split by the US government and migrants, as the price of the visa would be set by the marginal migrant, that is, the migrant working in the US who least values his position in America.  If we split the surplus, the realized market visa fee would come in around $2.50 - $3.50 / hour, or $5,000 - $7,000 on an annualized basis.  Most migrants would be better off, and all those who tried to enter the US but failed, would be much, much better off.

On the other hand, in a market-based system, the immigration option value will tend towards zero.  Because the price is set by the market, rather than administratively, any value implicit in the visa -- including the possibility of permanent residence or citizenship -- will show up in the visa price.  This could be material.  For example, the certainty of citizenship after 15 years would raise the price of the visa by as much as $5 / work hour, a crippling amount for an unskilled laborer earning $10 / hour.  Therefore, policy-makers of both parties will tend to avoid linking MBVs to permanant status in the US, for fear of putting working migrants into penury as they channel the bulk of their earnings into, essentially, a large down-payment on future citizenship.  For conservatives, this is a major selling point, as MBVs by their nature resist creating a path to later amnesty.

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