ILLEGAL IMMIGRATION, EMPLOYER SANCTIONS AND EQUILIBRIUM

We extend the seminal Bond and Chen (1987) two-country model of i l legal immigration using a constant elasticity of substitution (CES) production function. The objectives of this paper are to prove the existence of equil ibrium both when capital is mobile and when i t is immobile between two countries, and to re-evaluate the effects of restrict ive internal inspections on domestic firms who intentionally hire i l legal foreign labor. We find equilibrium under both capital mobil i ty and immobili ty. When capital is mobile, i f the equil ibrium is saddle point stable, then an increase in inspections increases i l legal immigration and decreases capital exports. JEL classif ication No.: F21, F2