The path of illegal immigration and domestic worker exploitation depends fundamentally on the Excess Migration Premium (EMP), the extra earnings a migrant can access by coming across the border illegally.
The Excess Migration Premium is the difference between the Prevailing US Unskilled Wage and the migrant’s Relocation Wage.
The Prevailing US Unskilled Wage
The prevailing unskilled wage in the US is approximately $10 / hour. About 20 million Americans work at this wage. For the US employer, the alternative to hiring a Mexican or Central American immigrant is to pay $10 / hour to a US citizen (assuming an employer can find US workers to fill certain jobs at any price). Therefore, at anything up to $10 / hour, an employer is willing to hire a migrant, illegally if necessary.
The Relocation Wage
The migrant’s Relocation Wage is the sum of
The migrant’s home country unskilled wage, about $2.50 / hour in Mexico and $1 / hour in Honduras,
A Relocation Premium sufficient to induce the migrant to leave his home country, which we calculate subjectively at 60% of the home country wage, and
An adjustment to cover the higher cost of living in the US. We estimate this at $2.50 / hour.
Thus, the Relocation Wage for an unskilled Mexican is about $6.50 / hour, and in the range of $5 / hour for Central Americans.
The Relocation Wage can change depending on home country circumstances. For example, an unemployed Guatemalan with dim jobs prospects at home might count his domestic wage (opportunity cost) as $0 when considering his Relocation Wage. Similarly, if one were fleeing violence, then the Relocation Premium could theoretically be a negative number, that is, a migrant may be willing to work for less than their home wage just to enjoy greater safety in the US.
Notwithstanding, a stylized Relocation Wage can help us understand the motivations of migrants.
The Excess Migration Premium
On the table below, we can see the excess migration premium for Mexico and Honduras, about $3.50 /hour for Mexicans, and almost twice as much, $6.15 / hour for Central Americans.
How motivated a migrant might be to come into the US illegally is a function of the multiples they can earn compared to their domestic wage. Mexicans can almost triple their net salary, and roughly double it if we include the inconvenience of having to leave their home country.
In the US, Central Americans can earn nearly eight times their home wage net of US expenses, and about five times as much even if compensating for the inconvenience of having to leave their homes.
The Economics of Illegal Entry
With this information, we can calculate the economic incentive to try to cross the border illegally. We have elsewhere calculated the expected cost of crossing the border — including cartel and guide fees, and the risk of death, kidnapping, extortion, rape, injury, arrest and incarceration — at approximately $13,800. This could vary depending to the values and probabilities one wishes to assign to certain adverse events, but it likely comes out in the $10,000 - $15,000 range.
We estimate the value of an illegal crossing at three years of earning the Excess Migration Premium. For example, a Mexican coming across illegally would hope to earn $3.50 / hour more than the number he would require to relocate to the US legally. That $3.50 / hour has to compensate for the risks of entering the US illegally. We know that consumers typically discount benefits — like buying a car with better fuel economy — over three years, and that’s what we use here. Three years works out to 6,000 work hours at $3.50 / hour, or about $21,000. That is the expected benefit of illegal entry. From this the Mexican migrant will deduct a subjectively estimated $13,800 in expected crossing costs, leaving a net benefit of $7,200 for coming across illegally. Note that it’s still worth it, but not that great. If the Mexican had stayed home, he would have earned $5,000, so a risk-adjusted benefit of $7,200 is about 17 months of pay. It’s better, but not hugely better.
Not so for Hondurans. Under similar assumptions, the expected value of crossing the border illegally represents nearly 12 years of home country income. That’s a big incentive.
The Rationality of Oscar Martinez
As a case study, we can use this framework to assess the reasoning of Oscar Martinez, who drowned along with his daughter in Rio Grande as they were trying to enter the US this past April.
As reported by the Daily Mail, in El Salvador, Oscar worked at a Papa John’s pizza restaurant, where he earned $350 a month. He and his wife Tania lived off this $10 / day, because Tania had already quit her job as a cashier in a Chinese restaurant to care for Valeria, their only child. According to Tania’s mother, they were not fleeing violence, but were in desperate search of a life where they could earn more. Their plan was to spend a few years in America to save up enough money to eventually return to El Salvador and buy or build their own house.
Did it make sense for Oscar Martinez to attempt to ford the Rio Grande? As it turns out, the payback potential — even allowing for the risks associated with crossing the border — was highly attractive. He took the risk and lost. Some of those attempting entry will die as a matter of absolute certainty. But from the individual’s perspective, it was the right call, with the expected benefit equal to five years’ wages.
Now, my conservative friends will chide me for seeming to endorse illegal immigration: “Migrants should follow US laws!” While I appreciate the sentiment, US laws are just one of several obstacles migrants must overcome to enter the US. What looks like morality for US conservatives boils down to a hard-nosed cost/benefit analysis — yes, informal and inexact — but a subjective cost/benefit analysis for migrants choosing between staying in their home countries and taking a shot at getting into the US. This is no different than the logic of the English colonists at Jamestown, the Pilgrims in Massachusetts, or the pioneers heading out west. All of them suffered from imperfect information and likely lacked formal quantitative analysis. But they made their best subjective estimate and decided. For some, the colonists at Jamestown or the pioneers at Donner Pass, the result was tragedy. But those on the Mayflower effectively became the founding families of the United States. They all took risks. Some won. Some lost. Just like Oscar Martinez.
In the end, Oscar Martinez was rational, just unlucky. It is US policy which is irrational, because it persists, on the one hand, with tactics which frankly have never worked, while ignoring migrants’ hard economic realities, on the other.
Ending Illegal Immigration: The Drive for 325
One of the interesting conclusions of our model is that we can calculate when illegal immigration is no longer worth it. This occurs at a surprisingly low wage. At a hourly pay of only $3.25, it no longer makes sense to jump the border. At this wage, the excess migration premium is no greater than the expected cost of crossing the border illegally. This is not that much higher than unskilled wages in the northern half of Mexico. That is why we increasingly see stories of Mexicans saying that they’ll only work in the US with official documentation, or not at all. That’s not true of Central America, though, where wages are much lower than in Mexico. As a consequence, we see a surge from Central America accompanied by a restrained pace of illegal crossings of Mexicans.
The debate over illegal immigration expends far too much effort on ideology, sentiment and mood affiliation. Policy analysis also has a place. We can achieve many, if not all, of our goals across a range of stakeholders if we employ quantitative analysis and honor established theory and practice.