Illegal Migration, Technology Adoption and Welfare Analysis

Despite border enforcement and penalties for firms that hire ille-gal migrants, the presence of illegal migrants in most economies still persists. This paper assumes a Recardian economy and analyzes migra-tion of illegal unskilled workers in a model of Cournot Duopoly where firms are producing homogenous and non-traded goods, and hiring il-legal migrants. In our model, a two-stage simultaneous move game is set up: In stage 1, for a given technology and vigilance level, each individual firm will decide whether to hire illegal migrants. In stage 2, each firm will choose the Cournot output level. Using this struc-ture, we demonstrate the possibility that hiring illegal migrants is not necessarily welfare-reducing, in terms of welfare, for a given industry and furthermore the presence of illegal migrants creates more employ-ment for domestic workers. In the same setup, optimal vigilance level is also analyzed and we find that multiple solution is possible. The model is extended to analyze an individual firm’s behaviour regarding new technology adoption in the presence of illegal migrants. We find that an individual firm that employs illegal migrants, can increase the industry’s welfare by resisting the adoption of new technology. ∗Corresponding author