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                                         Dawn McLaren
                                       Research Economist
                              L. William Seidman Research Institute
                                 W. P. Carey School of Business
                                     Arizona State University

The best way to solve a problem is to start by properly defining it. In the case of illegal
immigration to the United States, the scope of the situation as well as the positive and negative
effects have been poorly defined, leading to ineffectual public policy and unintended

The Number of Illegal Aliens

The U.S. Census Bureau is the primary source of demographic data of those living in the United
States. However, the Census Bureau does not collect information on the legal status of residents
in any of its surveys or censuses, including the decennial census, the Current Population Survey,
and the American Community Survey. While data on the person’s place of birth and citizenship
status are collected, no information is collected on a non-citizen’s visa status. Therefore, the
Census Bureau is not a source of data as to the number of illegal aliens present in the United
States in any given year.

Social scientists often use the Census Bureau data as a starting point for estimating the number of
people residing in the United States without authorization. Beyond figures of the number of non-
citizens and the national origin of the foreign-born population, every other input is based upon
assumptions as to how many people are likely to be in the United States illegally from each
country. Thus, in any study that estimates the size of the illegal alien population in the United
States, the assumptions used should be examined critically.

To illustrate how perceptions can play a role in these assumptions, one only need look at a recent
poll of Arizona residents. The perception of Arizona residents is that four out of every ten
employees in the private sector are working illegally (Behavior Research Center, October 5,
2005, www.brcpolls.com). That means that they believe that 40 percent of Arizona employees in
the private sector are working without authorizing documents, a surprising proportion given that
even the largest estimates of the number of illegal aliens living in the United States are less than
5 percent of the population and that the entire Hispanic proportion of the Arizona population in
the 2000 Census was 25 percent.

The Use of Public Services and Taxes Collected

A common issue in the debates on illegal immigration is whether illegal immigrants are a net
benefit or a net cost to American society. Unfortunately, a lack of data regarding the benefits and
costs makes the answer to this question subject to multiple assumptions.
Since an illegal immigrant cannot easily be identified, and a total number is not available, the
benefits and costs are subject to considerable speculation. However, illegal aliens do contribute
to the tax base of the community and state in which they live, as well as to the federal
government. Property taxes, for instance, are paid to a landlord as a part of the rental payment.
Sales taxes are paid every time a purchase is made. For those able to obtain a job through fake
identification, state and federal income taxes are paid. In addition, Social Security payments are
made, monies that will not be returned to the illegal immigrant.

One long-term study of Mexicans and Central Americans who have lived in the United States
sheds some light on the subject of the use of public services by immigrants. This study of the
behavior of illegal aliens by Douglas Massey of Princeton University is done with collaboration
from the University of Guadalajara in Mexico. The questions asked include such matters as the
reasons for coming to the United States, the number of trips made, the length of stay, and the use
of health services and schools. This is raw data on the use of public services by illegal aliens,
not an aggregate estimate as to the cost of the use.

Estimating the cost of illegal aliens in terms of health care illustrate the challenges. Hospitals
generally do not collect information on a patient’s legal status. They collect information about
the person’s health history and perhaps some demographic information such as language,
especially if a translator is needed. Of course, a German tourist may find himself in need of care
at a hospital in Arizona, so the assumption cannot be made by the hospital that the foreigner is
actually an illegal alien. Often what is reported by hospitals as unpaid costs also include U.S.
citizens whose insurance did not cover the services and U.S. citizens who are uninsured. In
addition, the illegal alien community is served by unlicensed doctors and dentists from their
home countries who speak their home language. Given this, it is even harder to determine how
much illegal aliens make use of conventional hospitals and clinics.

A similar problem applies to the number of illegal alien children in schools. Simply stated, there
are no reliable data as to the number of illegal aliens making use of our public services and the
cost of that use.

The Forces Driving Illegal Immigration

In the United States, the large size of the “baby-boom” generation born from 1946 through 1964
relative to both the younger and older generations has had significant effects on the American
economy and society. The baby-boom generation has for some years been in their prime years of
earnings and demand for goods and services. Yet the small size of the of the “baby-bust”
generation, born from 1965 through roughly 1980, has meant that relatively few American-born
have been available to enter the workforce to meet the demands of the baby-boom generation.
The result has been a labor shortage, particularly in certain occupations typically filled by the
young and/or untrained, such as construction work and landscape maintenance.

Labor force statistics indicate that the United States has been near full employment for a number
of years. The number of unemployed has been well short of the demand for workers. Further,
those unemployed may not match the demand for labor either in skills or in geographic location.
For an employer to hire someone, there has to be what economists refer to as a double
coincidence of wants. This means that both parties have to want what the other has to offer. A
laid-off factory worker in Michigan would have to want (and be qualified for) the construction
job in Arizona, for example. Given family ties and community connections, it is unlikely that
the Michigan factory worker would want to relocate to satisfy the needs of the Arizona general
contractor. Someone suffering poverty in Latin America, however, may be willing to do so. It is
not that the construction wage is too low for the Michigan factory worker, but that the familial
and community networks he has developed at home are too valuable to give up. He gets more
utility from his home network than he does from a wage in Arizona.

The labor shortage in the United States has coincided with a labor oversupply in Mexico and
Latin American countries. In these countries, the number of young people aging into the
workforce has been greater than the number in the older generations. Along with low wages and
in some cases a poorly performing local economy, young people in these countries have been
“pushed” from their home country. At the same time, they have been “pulled” to the United
States by its prospects of jobs and a better standard of living.

Thus, it is clear is that the majority of illegal aliens are in the United States to work. Some may
cross the border illegally, others overstay their visas and some have visas authorizing only their
presence in the United States, but simply work anyway. The number of people in each category
is unknown. Also unknown is the number of illegal aliens who leave the United States each
year. Some data are gathered from samples of Mexican citizens that are repatriated after stays in
the U.S., but this is hardly a robust profile of the population of illegal aliens as a whole.

Bolstering the argument that the majority of illegal aliens, especially those that cross the border
illegally, are responding to the market forces demanding their labor is how well the pattern of
apprehensions (which presumably rise and fall with the number of attempted crossings) matches
growth in U.S. Gross Domestic Product, as seen in the following chart.

                                                                             Illegal Immigration and Economic Growth

                                6.0%                                                                                                                          200,000


                                                                                                                                                              150,000   Seasonally Adjusted SW Border Apprehensions
   Percent Change in Real GDP


                                3.0%                                                                                                                          100,000




                                0.0%                                                                                                                          -







































During the last period that the United States experienced a labor shortage (from World War II
into the 1960s), the U.S. government responded by instituting the well-known Bracero Program
(see graph below). During the current labor shortage, however, no change to immigration policy
has been made. One result has been a large number of illegal immigrants meeting the demand for
labor from U.S. employers. Had the United States modified its immigration policy to reflect the
increased need for labor by American companies, the issue of illegal immigration is unlikely to
have occurred.

The American labor shortage also has contributed to the export of jobs to other countries.
However, many jobs cannot be shipped overseas, such as farm workers, landscape maintenance,
home construction, domestic service and restaurant and hotel service. Higher wages in such
occupations would not have solved the imbalance between supply and demand given the small
number of young Americans aging into the workforce, the high employment rate of older
Americans, and the mismatch in skill levels and locations between non-working Americans and
available jobs. It is unreasonable, for example, to expect a 60-year-old early retiree or a laid-off
engineer to seek work as a construction worker. In addition, higher wages paid to workers would
have increased prices paid by Americans for goods such as food and housing.

                              Population Born in the USA by Percent in Age Category
                                                      1900 to 2000





                                                                                       15 to 24 Years Old
                                                                                       44 to 64 Years Old
                                                        Bracero Program
                                                          1942 - 1964
          1900      1910      1920    1930     1940        1950       1960   1970   1980       1990         2000
   Source: US Census Bureau
Unintended Consequences of Public Policy

The North American Free Trade Agreement (NAFTA) was supposed to make trade between
Canada, Mexico and the United States easier. The execution of the treaty, however, has had
some unintended consequences. When NAFTA was initiated, it was required that the
maquiladoras, factories in Mexico that manufacture goods primarily for export to the U.S., be
located within 75 miles of the U.S. border. This seemed to be convenient for U.S. businesses,
but it ignored the fact that the labor needed for these factories was located in the central part of
Mexico, not the north. The location of the maquiladoras along the northern border created
migration within Mexico from the central and southern states to the north. When maquiladora
activity slowed due to competition from China, workers now located at the U.S. border found
themselves unemployed. Jobs in the U.S. become far more attractive when one is already
located at the border.

In 1986, the Immigration Reform and Control Act (IRCA), along with amnesty for those who
had been working illegally for some time, came the requirement that employers collect copies of
certain documents from their employees. In the case of foreigners, this often means a copy of
the green card and Social Security card. This spawned an industry servicing the market for false
green cards and Social Security cards. New technology used to quickly verify whether the Social
Security number is a valid match to the name has created a market for false cards with verifiable
numbers and names. This new market provides additional opportunities to identity thieves.

Withholding state driver licenses from illegal aliens attempts to limit the ability of illegal aliens
to function normally in U.S. society. Unfortunately, this means that illegal aliens cannot obtain
auto insurance and cannot buy a vehicle in the legitimate market. Insurance premiums for U.S.
citizens rise as the number of uninsured drivers on the roads rise. In the case of construction
jobs, it is essential to have a motor vehicle as areas under construction generally are not served
by public transportation even in well-established urban areas.

Increased border security has raised the cost of crossing the border illegally. Ten years ago, the
cost to cross was between $300 and $500 and now the cost is close to $2,000. This has become a
very profitable business for human traffickers and those in the business jealously and
dangerously guard their quarry. Because the initial cost is so high, crossers will give the
smuggler a down payment with the remaining cost to be paid from work obtained in the U.S.
This establishes a continuing tie between the smuggler and the smuggled, leading to
opportunities for extortion and hostage-holding.

What Needs to be Done

When it comes to immigration policy, it is necessary both to define the situation properly and the
address any goals the policy might have, whether it be a solution to the labor shortage or to
tackle the issue of border security. Both the costs and benefits related to the current situation
must be accurately measured by unbiased parties who will not inject their perspective in to the
assumptions, something that has been sadly lacking to this point. The trends in the labor market
need to be identified such that policymakers can be more proactive when it comes to designing a

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