On the political economy of illegal immigration

This paper provides an economic rationale for the tolerance of some level of illegal immigration by many developed countries. Illegal migrants can be easily hired with informal contracts that do not respect labour market regulations such as the minimum wage. Informal employment of illegal migrants allows increases in production and capital revenues above the levels in which marginal labour productivity equals the minimum wage and it does not depress natives’ wages, protected by the regulation.Using a standard general equilibrium model, we show that in presence of a minimum wage regulation, natives with sufficient capital holdings prefera positive level of illegal immigration.status: publishe