U.S. Imports of Low-Skilled Labor: Restrict or Liberalize?

We use simulations from a detailed dynamic computable general equilibrium (CGE) model to study three broad policies toward illegal workers in U.S. employment: supply restriction (tighter border security), demand restriction (prosecution of employers), and legalization through a guest-worker program with a visa tax. From the point of view of the welfare of legal residents, the results strongly favor the third option. In our welfare analysis, we use a six-part decomposition. This identifies effects on the occupational mix of legal employment as a major factor. Throughout the chapter, model results are explained through arguments and diagrams that will be familiar to economists, particularly those working in trade. No familiarity with the underlying CGE model is assumed. Technical details on our labor market assumptions are given in the Appendix