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A Note On the Pay of Undocumented Workers

A friend e-mailed the following question to me in response to my claim that the compensation received by undocumented immigrants is lower than it would be if the U.S. government placed no restrictions (other than those that it places on American citizens) on the ability of immigrants, documented or not, to find work and keep work in the U.S.:

But Don.. if they receive a depressed wage because of the fact they are “illegal”… then how does that square with economic theory of free market choice..

Good question.

The answers are at least two.

First, employers of undocumented immigrants incur a risk of being penalized if these employers are discovered employing such foreigners.  This risk must be compensated.  So the wages paid to undocumented workers are lower than they would be if their employers did not face this risk.

Second, the number of employers – and the kinds of employers – willing to take the risk of hiring undocumented workers is smaller than is the total number and kind of employers in the economy.  This fact artificially restricts the number of employers who will compete for the services of any given undocumented worker.

There may well be other reasons – e.g., additional imperfections in information about wages and work conditions.