The pros and cons of regularizing undocumented immigrants

Over 10 million undocumented immigrants live in the US, accounting for 23% of the foreign-born population and about 3% of the total population. Similarly, Europe (EU, UK, and EFTA countries) houses 4 to 5 million undocumented immigrants, making up almost 20% of the foreign-born population and nearly 1% of the total population.

The presence of this sizable undocumented population fuels the ongoing immigration policy debate, raising questions about how to address their status. Some countries have opted for amnesty programs to regularize the status of undocumented individuals. For example, the US enacted the Immigration Reform and Control Act in 1986, granting amnesty to 2.7 million people. Italy and Spain have also implemented well-known regularization programs, offering legal status to hundreds of thousands of immigrants. Additionally, amid the Covid-19 crisis and growing labor needs, countries like France and Portugal have eased the use of undocumented labor by legalizing their status.

But what impact do these amnesty programs have on the labor market? To explore this question, we exploit the largest amnesty program in French history, which aimed to regularize the status of undocumented workers who had entered the country before January 1, 1981, and had stable employment.

The French regularization program led to increased employment and wages for both native and immigrant workers, particularly among low-skilled workers who formed the majority of those regularized. A key reason for this is the prevalence of monopsony power in the undocumented labor market, where fear of detection and deportation gives employers control over wages and employment. Regularization programs effectively address this inefficiency, leading to employment gains for regularized immigrants and potentially spilling over to other labor market sectors if complementarities exist between authorized and undocumented workers.

In theory, such programs should also expand economic output, creating what we call a "regularization surplus." The French regularization program increased per-capita GDP by approximately 1%, representing a permanent increase in aggregate income resulting from addressing inefficiencies in the labor market.

However, the implications of this analysis for undocumented immigration policies are not as straightforward as "regularization expands the economy" might suggest. The inefficiencies addressed by these programs would not exist if there were no undocumented labor market. Moreover, amnesty programs may impact migration incentives in sending countries, potentially creating new inefficiencies. Additionally, fiscal consequences, including social expenditures and tax revenues, must be considered when evaluating the overall costs and benefits of regularization policies.

In conclusion, amnesty programs aiming to regularize the status of undocumented immigrants can significantly affect the labor market, leading to increased employment and wages. They can also generate a "regularization surplus" that contributes to economic growth. However, the broader implications and trade-offs associated with such policies are complex and require careful consideration of their long-term impact on the economy and society.

George Borjas is Professor of Economics and Social Policy at Harvard University and IZA Research Fellow

Anthony Edo is an Economist at CEPII (Paris) and IZA Research Fellow

Please note: We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.