Journal of Ethnic and Migration Studies

Vol. 35, No. 6, July 2009, pp. 1037
1052

Illegal Immigration: A Positive

Economic Contribution to the United
States
Ramanujan Nadadur

This paper surveys a range of contemporary issues regarding illegal immigration in the
United States, with a focus on the consequences of undocumented immigrants on the
economy. The analysis looks at the effects of illegal immigration on jobs and wages in a
dual labour market model and the fiscal impacts of illegal immigrants (taxes paid and
costs imposed on society through use of public services). The paper argues that illegal
immigration has a positive impact on the US economy; although illegal immigrants
impose a fiscal cost at the state and local levels, this cost should be addressed by efficiently
allocating resources between the federal and state governments.

Keywords: Illegal Immigration; Dual Labour Market; Undocumented Migrants;

Economic Effects of Immigration; US Economy

Introduction
Throughout its history, the United States has been hailed as a haven for immigrants
from around the world. People have flocked to the nation’s shores, seeking the
freedoms that America guarantees and the economic opportunities that the American
economy presents. In recent decades, however, the increasing presence of illegal
immigrants has been troubling. Scholars have debated whether illegal immigrants
contribute positively or negatively to the United States, and legislators have grappled
with how to deal successfully with this issue. Illegal immigration also raises difficult
questions about the American economy and how the country continues to seek low-
wage labour while at the same time providing opportunities for its citizens. The
terrorist attack of 11 September has brought a new dimension to the debate
surrounding illegal immigration, as politicians and scholars have called for increased
controls of the flow of illegal immigrants as a matter of national security.

Ramanujan Nadadur is doing a Master’s in Forced Migration at Oxford University. Correspondence to:
R. Nadadur, 1 Lord Napier House, 48 Observatory Street, Oxford OX2 6EP, UK. E-mail: rnadadur@gmail.com

ISSN 1369-183X print/ISSN 1469-9451 online/09/061037-16 # 2009 Taylor & Francis

DOI: 10.1080/13691830902957775
1038 R. Nadadur
Illegal immigration, however, is a difficult issue to study. To begin with, the
number of undocumented immigrants entering the United States is not precisely
known. In fact, no census or government survey asks individuals about legal status.
As a result, the measurement of issues pertaining to illegal immigration is difficult
and often indirect (Espenshade 1995). While a great deal of political debate
surrounds illegal immigration today, it is important to evaluate the economic
consequences of this type of immigration in order to decide about its actual merits.
This paper will first characterise the nature of the illegal immigrant population in
the US and examine statistical methods of calculating their numbers. It will then turn
to a brief history of illegal immigration to the US, a history that can be traced from
the end of the Bracero Accord in 1964 to the contemporary post-NAFTA era of illegal
immigration. With this serving as a backdrop, the paper will mainly study the
economic consequences of illegal immigration in the US by focusing on the effects of
illegal immigration on jobs and wages in a dual labour market model and the fiscal
impacts of illegal immigrants (taxes paid and costs imposed on society through use of
public services). It will be seen that illegal immigration has a positive impact on the
US economy and that, in spite of a fiscal cost being imposed at the state and local
levels, efficiently allocating resources between the federal and state governments could
help to solve this dilemma.

Measuring the Illegal Immigrant Population: Methodology and Figures

In addressing the issue of how to measure the number of illegal immigrants in the US,
three major techniques have been adopted:

. Immigration and Naturalization Service (INS) or Department of Homeland

Security (DHS) apprehension-based estimates;
. survey-based methodologies; and
. residual estimation techniques.

Apprehensions data calculate the number of illegal immigrants entering the US based
on those apprehended at the border by US officials. This method has some drawbacks
because, first, it measures undocumented immigrants who have failed in their
attempt to enter the US rather than those who succeeded. Second, many migrants are
captured several times in the same period, resulting in multiple counting. Finally, the
level of apprehensions is sensitive to changes in the effectiveness of Border Patrol,
which has little to do with the number of illegal immigrants entering the United
States (Espenshade 1995). Survey-based methodologies, on the other hand, obtain
information about individuals believed likely to be undocumented from samples that
weigh characteristics of the population (i.e. income level, year of arrival, age, country
of birth, educational attainment, sex, receipt of welfare, receipt of Social Security,
veteran and marital status) to produce estimates of the probability that a given set of
individuals are undocumented.1 Though this method has shown potential, it has
 Journal of Ethnic and Migration Studies 1039

been criticised for stereotyping the undocumented population and has not been as
widely used as the residual method (Espenshade 1995).
This paper will rely mainly on figures determined by the residual method as
employed by Jeffrey Passel at the Pew Hispanic Center. In employing the residual
method, one subtracts a Census or Current Population Survey (CPS) estimate of the
legally resident, foreign-born population in the US from the Census or CPS estimate
of the total foreign-born population (Espenshade 1995). The difference between the
two represents the total undocumented population. The major disadvantage of this
method lies in the fact that it probably undercounts the undocumented population
because immigrants are less likely to respond to Census or CPS surveys compared to
native individuals, and it is difficult to quantify this disparity. Nonetheless, it has been
the most-widely used method because it is one of the few that utilise direct estimates
to count the undocumented population. Variations of the residual estimation
technique have been used to count the number of illegal immigrants living in certain
states and their characteristics*sex, age, country of origin, etc.
According to Passel’s residual method, there were 10.3 million undocumented
immigrants residing in the US in 2004, accounting for 29 per cent of the total
immigrant population (Passel 2005). The majority of the illegal population is
comprised of those who entered the country without inspection, so-called EWIs. The
next group is those who entered the US legally, for example on a tourist or student
visa, but overstayed the visa and continue to reside in the US. The remainder of the
illegal population is ‘quasi’-illegal immigrants who are out of status but are in the
process of adjusting status or applying for asylum.2 The bulk of the illegal immigrant
population is comprised of labour migrants who come to the US in search of
economic opportunity (Haines 1999). When looking at country of origin, 57 per cent
of undocumented immigrants come from Mexico. The next largest group originates
in Central America, constituting 15 per cent of the illegal immigrant population
(Passel 2005).

A Brief History of Illegal Immigration

Before looking at the history of illegal immigration to the US, it is important to
examine the general pattern that has characterised illegal migration streams. This
pattern begins with an initial migration of pioneer migrants who were generally
young males working in agriculture or other low-wage jobs. Over time, these pioneers
made multiple trips and accumulated experience and knowledge of the US. With this
experience, more of these illegal migrants settled permanently in the US. After the
pioneer males settled, family integration ensued as wives and children were brought
over and relatives encouraged to migrate. The ‘maturation’ of the migrant stream also
included the introduction of friends and acquaintances into the migratory stream
(Massey et al. 1994).
Many scholars trace the initial roots of illegal immigration to the US to the end of
the Bracero Program. Though its official end in 1964 was meant to herald a shift by
1040 R. Nadadur
agricultural growers to the native labour force and mechanised agriculture, the
Bracero Program created a steady supply of cheap labour from Mexico; as a result,
after 1964, growers substituted illegal labour for the formerly legal bracero labour
(Calavita 1992). The first period of mass illegal immigration thus immediately
followed the Bracero Program and occurred between 1965 and 1986 (Massey et al.
2002). James (1991: 4
5) argues that ‘networks created by workers coming in as
braceros were used to aid the subsequent illegal immigration of friends and relatives’.
During this 20-year period, there were increasing numbers of women and children
entering the US illegally. In addition, this period witnessed a diversified demand for
cheap labour in the US that not only included agriculture but other unskilled jobs in
transportation, construction, production and service (Woodrow-Lafield 1999).
In 1986, significant steps were taken by the US government against illegal
immigration with the passage of the Immigration Reform and Control Act (IRCA),
which created civil and criminal penalties for US employers who knowingly hired
undocumented immigrants and authorised a one-time-only ‘amnesty’ programme
which sought to legalise certain immigrants already living in the US (Gonzalez 1997).
Although the IRCA’s amnesty reduced the population of illegal immigrants, scholars
now acknowledge that it largely failed to stem the tide of illegal immigration. As firms
expanded their production, the demand for unskilled labour continued to attract
illegal immigrant workers. By 1990, for example, the Immigration and Naturalization
Service (INS) reported an increasing border apprehensions rate (Massey et al. 2002).
Further, the estimated 2.3 million legalisations of Mexican illegal immigrants by the
IRCA increased the probability that relatives and other acquaintances would migrate
illegally because IRCA legalisations created a larger pool of potential migrants in
Mexico with connections to legal migrants in the US.
Finally, the 1994 passage of the North American Free Trade Agreement (NAFTA)
created a new incentive for migration that had not existed before. Because illegal
immigration has continued unabated in the aftermath of the IRCA, the government
has virtually stopped enforcing the 1986 employer sanctions. In 2003, for example,
the agency levied only $9,300 in fines against employers (Katel 2005).
Thus, current illegal immigration can be traced to policy decisions made in the late
1980s and early 1990s. In short, the last 15 years have shown a marked increase in the
number of illegal immigrants coming to the US. In 1990
94, for example, about 2.2
million undocumented immigrants settled in the US at a rate of 450,000 per year;
between 1995 and 1999, about 3.6 million settled*750,000 per year, and between
2000 and 2004, about 3.1 million*700,000 per year. To put these numbers in
perspective, only about 1.3 million undocumented immigrants settled in the US
between 1984 and 1988 (Passel 2005). While many illegal immigrants acquired legal
status through the IRCA, and undocumented immigrant numbers in the 1980s were
probably higher than this figure shows, the last decade has, nonetheless, shown a
marked increase in illegal immigration. In fact, by 2004 the number of undocu-
mented immigrants living in the US was at a new high.
 Journal of Ethnic and Migration Studies 1041

Recent data also suggest an increased dispersal of illegal immigrants. In 1990, 45

per cent of the illegal immigrant population lived in California; this number had
fallen to 24 per cent by 2004. The distribution of illegal immigrants across major
states is as follows: 24 per cent (2.4 million) live in California, 14 per cent (1.4
million) in Texas, 4 per cent (400,000) in Illinois, 9 per cent (850,000) in Florida and
7 per cent (650,000) in New York. In addition, the number of undocumented
immigrants in states other than these has increased from 12 per cent of the total
undocumented population in 1990 to 39 per cent in 2004 (Passel 2005).

The Labour Market Impact of Illegal Immigration

Classical economics holds that immigration benefits the host country because it
subsidises the labour supply. In short, the sending country bears the costs of raising a
worker to the age when s/he is ready to enter the labour market. As a result, the
sending country pays for the labour productivity of the receiving country. According
to this argument, immigrants also positively benefit the economy by increasing
demand, spurring investment, and keeping receiving-country industries competitive
through enhancing capital productivity (Borjas 1994).
When examining the issue of illegal immigration in the US, however, many
contemporary economic theorists have focused on the negative economic effect illegal
immigration has on the labour market. These critics have argued that significant
numbers of illegal immigrants harm the economy by displacing low-skilled natives,
depressing wages and neutralising market pressures that would otherwise result in a
rising trend in wages. Labour unions and native US workers have often adopted this
line of reasoning in calling for stricter immigration controls to protect US jobs and
safeguard the wage structure. On the other hand, scholars have argued that illegal
immigrants perform jobs that no US worker will fill; as a result, these scholars hold
that reducing the illegal immigrant population would be devastating to the US
economy (Lerman and Schmidt 1999). In order to examine the labour market effects
of illegal immigration in detail, this section will examine a dual model of the US
labour market and seek to demonstrate the consequences of illegal immigrants on
jobs and wages in the US.

Labour Market Theory

What exactly does dual labour market theory hold? Specifically, the theory divides the
economy into two segmented labour markets: the primary and the secondary sectors.
The secondary sector is differentiated from the primary by short-term employment
relationships and little or no prospect of internal promotion. In terms of occupations,
this sector consists primarily of low or unskilled work or service jobs, linked by the
fact that they are characterised by low earnings, job impermanence and low returns
on education. Primary labour markets, on the other hand, are characterised by skilled
work, employment stability, the presence of job ladders, effective trade unions and
1042 R. Nadadur
efficient management. In adopting a dual labour market model, production functions
have three variables: capital and two types of labour input (Smith and Edmonston
1998: 15).
Segmentation of the labour market occurs because of the way in which employers
use capital and primary labour as opposed to secondary labour to deal with the
uncertainties of the economy. Workers in the primary sector are ‘capital intensive’
and are costly to acquire, train and lose; workers in the secondary sector are less costly
to train and less costly to lose. Since employers face unstable demand for their
products, these employers have the incentive to use skilled labour to meet stable
portions of demand and unskilled labour to satisfy unpredictable portions. This
results in the secondary labour market being characterised by job insecurity, low
wages and little prospect of upward mobility. When using this model in conjunction
with immigration, this theory holds that native workers generally seek jobs in the
primary sector of the economy where higher skills are required, pay is better and job
status is secure. The shortage of labour in the secondary sector forces employers to
turn to immigrant, unskilled labour to meet the less-stable demand (Espenshade
1995).

Dual Market Theory in Practice: Illegal Immigrants in the US

There are several other theories that seek to explain immigration and its relationship
to the labour market. Dual labour market theory is beneficial in understanding illegal
immigration, however, because it accounts for the characteristics that separate the
illegal immigrant, low-wage sector from the rest of the labour market. In addition,
research has found that competing immigration and labour market theories*the
Neoclassical and the Marxist, for example*are not mutually exclusive with a dual
labour market but are, instead, complementary in explaining the labour market
effects of immigration (Meyers 2000).
So why is illegal immigration in the US labour market best modelled by a
predominantly dual labour market approach? First, illegal immigrants are more
temporary than legal immigrants and fit the profile of labour needed by secondary-
sector jobs. Second, illegal immigrants are more willing than legal immigrants and
native workers to take jobs where high labour turnover and poor working conditions
have become a part of the labour process (Marcelli 1999). Thus, the inherent
characteristics of illegal immigrant labour cause these immigrants to take jobs in the
secondary sector. Furthermore, illegal immigrants are ideal representatives of the dual
labour market model since they pose little threat of crossing over between markets.
As evidence of the segmentation of the labour market between a secondary sector
filled by illegal immigrants and a primary sector comprised of native workers, studies
by, amongst others, Espenshade (1995), Massey (2005) and Massey et al. (2002), have
shown that illegal immigrants occupy unskilled jobs that involve low wages, tend to
be temporary and where working conditions are harsh, unpleasant and unsafe. For
example, while only 4.3 per cent of workers in the entire labour force are
 Journal of Ethnic and Migration Studies 1043

undocumented, 20 per cent of farming occupations, 17 per cent of cleaning

occupations, 12 per cent of construction and 11 per cent of food preparation
occupations are held by undocumented workers (Passel 2005). Furthermore, in
examining a variety of specific occupations in the secondary sector in 2004, the
number of undocumented immigrants ranged between 20 and 27 per cent.
Additional evidence of the segmentation of the labour market between skilled
workers and illegal immigrants can be traced to the fact that undocumented
immigrants are paid less than other workers. Illegal immigrants receive the same
wages as native and legal immigrant workers with comparable levels of skill, therefore
the difference in overall wages can be attributed to the lack of labour market
experience and human capital that characterise illegal immigrants (Espenshade 1995;
Massey 2005; Massey et al. 2002). Specifically, the education levels of illegal
immigrants only open certain jobs to them. For example, it is estimated that 32
per cent of undocumented adults did not complete 9th grade compared to only 12 per
cent of legal immigrants and 2 per cent of natives (Espenshade 1995). Consequently,
the limited educational levels that characterise illegal immigrants and the lower pay
that they earn serve to demonstrate that only the secondary portion of the labour
market is accessible to them.
The final evidence of the segmentation of the labour market between a secondary
sector open to illegal immigrants and a primary sector is the fact that illegal
immigrants show a great deal of mobility between jobs in the secondary sector. For
example, studies have shown that illegal agricultural workers transfer to other
unskilled jobs as time progresses and they acquire more US-specific skills (Marcelli
1999). Nonetheless, illegal workers have not adequately shown the ability to leave the
secondary labour market for the primary. While basic economic theory suggests that
workers in the labour market increase wages and enhance job opportunities by
gaining experience and knowledge over time, the lack of mobility for illegal
immigrants from the secondary to the primary sector confirms that the labour
market is segmented and prevents this type of upward mobility (Woodrow-Lafield
1999).

Illegal Immigrants and Competition for Jobs in the Secondary Sector

Though the analysis up to this point has established that the labour market is
partitioned and that illegal immigrants predominantly occupy secondary-sector jobs,
one could argue that, even if the labour market takes on a dual structure, illegal
immigrants and native workers compete within the secondary sector.3 As noted
above, an average of 24 per cent of undocumented workers are found in secondary-
sector jobs, implying that a significant number of native workers are also to be found
there.
While this analysis appears to be well founded, it assumes that there is a one-to-
one relationship between native workers and illegal immigrants; for every job that an
illegal immigrant occupies, he/she is competing directly with a native worker. Studies
1044 R. Nadadur
suggest, however, that illegal immigrants offset a labour shortage in the secondary
sector and hence do not compete directly with native workers. For example, though
the native unemployment rate for food preparation jobs is 9 per cent (Camarota
2005), 25 per cent of these jobs are held by illegal immigrants (Passel 2005). Similarly,
though the native unemployment rate is 12 per cent in farming occupations
(Camarota 2005), illegal immigrants hold 20 per cent of them (Passel 2005). In short,
there are more jobs in the secondary sector than there are native workers to fill those
jobs. Further, the labour shortage in the secondary sector is growing. According to
Daniel Griswold,4 the native high-school dropout rate has fallen to 10 per cent, an all-
time low, and is continuing to fall. This means fewer natives are drawn to unskilled
secondary-sector jobs. Thus, illegal immigrants only compete with native workers to
a limited extent; for the most part, these immigrants satisfy the growing labour
shortage in the secondary labour market.
Critics, such as Camarota (2005), who argue that native workers and illegal
immigrants compete within the secondary labour market also aggregate all local
labour markets in the US into a single one; proponents of this line of reasoning make
the neoclassical assumption that mobility between local labour markets in the US is
free. In reality, however, local labour markets in the US are isolated from one another
and mobility between them is restricted (Osterman 2001). In addition, the illegal
immigrant population is concentrated in certain cities and states. It is estimated, for
example, that 20 per cent of the 4.2 million labour-force participants in the Los
Angeles market are illegal immigrants of Latino origin (Marcelli 1999). Consequently,
the labour markets in cities with a high concentration of illegal immigrants have a
secondary sector filled by them. Labour markets in cities where illegal immigrants are
not found, on the other hand, employ native unskilled labour in the secondary
market. Accordingly, natives do work in secondary-sector jobs, as seen above.
However, they do not compete directly with illegal immigrants because they do not
necessarily work in the same local labour markets.

Illegal Immigrants, Complements and Wage Effects of Illegal Immigration

There is also a lack of evidence demonstrating that illegal immigrants and native
workers occupy the same jobs even when considering that some native workers work
in secondary-sector jobs alongside illegal immigrants. Marcelli (1999) demonstrates,
for example, that the index of dissimilarity between Mexican undocumented
immigrants and other workers in the labour force is 40.73. This index is measured
by ‘taking the difference between how a given ethno-racial group and all other labor
force participants are proportionally represented in each of the 42 occupational, 40
industrial and 8 class of worker categories, summing up the differences for each
group, and dividing each group by half ’ (Marcelli 1999: 200). To put this figure in
perspective, the index of dissimilarity for white immigrants to the US is 19.55,
indicating that they occupy much more similar jobs to other labour force
participants. Consequently, Marcelli argues that undocumented immigrants do not
 Journal of Ethnic and Migration Studies 1045

compete for the jobs of native US workers and that a continued flow of
undocumented immigrants would benefit the majority of persons residing in the
US by complementing their labour market position instead of competing for it
(Marcelli 1999). Evidence that illegal immigrants are complements in the labour
market has also been put forth by Djajic (1997), who demonstrates that, since natives
and illegal immigrants do not compete in the same sector for the same jobs, illegal
immigration provides benefits not only to capital but also to all native workers.
Regardless of whether or not illegal immigrants act as complements, however,
scholars have buttressed the claim that illegal immigrants do not adversely affect the
wages and earnings of other labour-force participants. For example, Espenshade
(1995: 214) argues that ‘undocumented migrants have little effect on the earnings of
individuals in five other labor force categories’, while Djajic (1997) holds that, in a
sufficiently segmented domestic labour market, native workers are largely insulated
from direct employment and wage effects of illegal immigration. Finally, statistical
evidence for the view that undocumented workers depress the wages of other
participants in the labour market is derived largely from case studies of a single
labour market (Camarota 2004, 2005). When the broader US economy is examined
adopting a dual labour market view, it is hard to find strong evidence of negative
wage effects on native workers. This can be attributed to the fact that a significantly
segmented labour market shields native workers from the wage effects of an influx of
illegal immigrants.5 Furthermore, since illegal immigrants and native workers occupy
different jobs, the former cannot exert downward pressure on native wages.
In addition, when examining the effects of illegal immigrants on skilled native
workers in the primary sector, illegal immigrants confer significant economic benefit
by acting as gross complements to native skilled workers (Newman 2006). Dual
labour market theory suggests that skilled natives are averse to jobs that involve
manual labour or poor working conditions. This desire to avoid secondary-sector
jobs indicates that illegal immigrants have a comparative advantage in unskilled jobs.
Consequently, when illegal workers occupy secondary-sector jobs for less cost, it
allows skilled workers in the US to occupy primary-sector jobs where they have a
comparative advantage. The result is greater economic productivity. Although
unskilled native workers may theoretically lose from the influx of illegal immigrants
(evidence has not borne this out, as noted earlier), the overall income of the native
population increases; in theory, losses to native low-skilled labour are offset by the
benefits to native skilled labour (Massey et al. 1993).
Illegal immigrants also have positive effects on all participants in the US economy
by decreasing consumer costs. As low-wage undocumented workers immigrate to the
US to fill the secondary labour market, products and services become cheaper
because illegal immigrants work for lower wages, thus providing a kind of subsidy to
American consumers. For instance, as noted before, a significant portion of US farm-
workers are illegal immigrants who generally work for lower wages. As a result, the
Agriculture Department’s Economic Research Branch has found that American
consumers pay less for food than the citizens of any other industrialised country
1046 R. Nadadur
(Katel 2005). Consequently, because illegal immigration serves to allow businesses to
minimise their costs of production in the secondary sector, it positively impacts
income of all native workers by decreasing consumer costs. Thus, on the whole,
research indicates that illegal immigrants do not take jobs away from native workers
and depress wages but, in fact, serve to spur economic productivity and decrease
consumer costs in the US.

Illegal Immigrants as Consumers

Illegal immigrants also positively contribute to the US economy as consumers in the
market. Though there have not been significant quantitative estimates of the
contribution that illegal immigrants make, it is important to acknowledge their
impact. Hinojosa (2005) estimates that 90 per cent of the wages that the
undocumented population earns are currently spent inside the US. As a result, he
holds that the total consumptive capacity of illegal immigrants remaining in the US is
around $450 billion (Cater et al. 2005).
Recent years have also witnessed a marked increase in the use of matrı´cula cards*
photo identification cards given out by the Mexican consulate to Mexican nationals;
the Mexican government reports that a vast majority of matrı´cula applicants do not
have documented status (Delson and Gorman 2005). Nonetheless, these cards are
accepted as valid identification by companies such as Sprint, Costco and Wells Fargo,
which has, for example, opened 525,000 matrı´cula accounts (6 per cent of the bank’s
total). Another company*No Borders Inc.*sells debit cards to matrı´cula-holders on
which they can store cash and send remittances home. In addition, health insurers
like Blue Cross of California have begun to sell health insurance to matrı´cula-holders.
The growth in acceptance of matrı´culas demonstrates the growing desire on the part
of US businesses to capture the consumer buying power of illegal immigrants.
Specifically, Business Week magazine reports that, ‘U.S. consumer companies*banks,
insurers, mortgage lenders, credit-card outfits, phone carriers, and others*have
decided that a market of 11 million potential customers is simply too big to ignore’
(Carter 2005). In addition, since 84 per cent of illegal immigrants are 18
44-year-olds
and in their prime spending years (Passel 2005), the positive contribution that illegal
immigrants make as consumers is an important issue to recognise when considering
the economic consequences of illegal immigration.

Fiscal Impacts
This section offers an introduction to important issues regarding the fiscal impact of
illegal immigration by examining whether undocumented residents in the United
States receive more in publicly provided social services than they pay for in taxes. In
short, illegal immigrants impose costs on government that include enrollment in
public schools and the use of emergency health services. Further, many illegal
immigrants pay payroll taxes (such as Social Security) that are automatically
 Journal of Ethnic and Migration Studies 1047

subtracted from their pay and excise taxes that are incorporated into the prices of
goods such as fuel. Unfortunately, research done by, inter alia, Borjas and Hilton
(1996) and Berk et al. (2000), measuring the fiscal impact of illegal immigrants, has
yielded a range of competing estimates. As a result, though an exact monetary value
cannot be discerned, it appears that illegal immigrants impose an overall fiscal cost, a
cost that is concentrated at the state and local levels. Further research is necessary to
arrive at reliable figures in order to gauge the fiscal impact of illegal immigration.

Public Service Costs

In examining the use of public services by illegal immigrants, three distinct costs
stand out: health care, education and incarceration. Though the Illegal Immigration
Reform and Immigrant Responsibility Act (IIRIRA) of 1996 barred illegal immigrants
from most public services, federal law continues to provide illegal immigrants with
access to emergency medical services and assistance for pregnant women and infants.
However, since maternity/infant assistance is given not only to a mother, but also for
the benefit of US citizen children, the largest unilateral health cost that illegal
immigrants impose is by way of emergency care. In terms of education, the Supreme
Court decision Lau v. Nichols (1974) held that the rights of non-English-speaking
students were violated when public schools did not take steps to teach them the
language of instruction. Further, the case of Plyler v. Doe (1982) guaranteed illegal
immigrant children public education.6 As a result, public schools are required to
provide education to all students regardless of immigration status and are prohibited
from requiring proof of status. The final major source of public costs stemming from
illegal immigration comes from incarcerating those illegal immigrants who commit
crimes while in the US.
Before looking at studies that have measured the fiscal costs of illegal immigrants,
it is important to examine the extent to which illegal immigrants are prone to use
public services. Specifically, in terms of gender distribution, 4.9 million or 56 per cent
of undocumented immigrants are adult males, 3.9 million or 37.5 per cent are adult
females and 1.6 million or 15.4 per cent are undocumented children (Passel 2005).
People have thus argued that the demographic distribution of illegal immigrants
indicates that they are not as likely to use government assistance because a wife or
child is probably a heavier user of public service compared to an adult male (Berk
et al. 2000). Furthermore, research on general trends in immigrant families indicates
that immigrants are less likely than natives to use public services (Borjas and Hilton
1996). An additional fear of being discovered by the immigration authorities could
potentially deter undocumented immigrants from utilising public services. For
example, a 2000 Health Affairs study determining health-care use among undocu-
mented immigrants found that they are far less prone to use any health-care service
available to them when compared with the resident population (Berk et al. 2000).
Regardless of their alleged propensity to shy away from public services, however,
figures indicate that illegal immigrants do utilise those services available to them. In
1048 R. Nadadur
looking at estimates of health care, for example, a comprehensive report released by
the Center for Immigration Studies (CIS) in 2004 estimated that households headed
by illegal immigrants create health-care costs totalling $658 million yearly at the
federal level by imposing a significant burden on Medicaid and uncompensated
emergency care treatment (Camarota 2004). A similar study released by the
Federation of American Immigration Reform (FAIR) held that, in 2004, uncompen-
sated medical care accounted for $1.4 billion in illegal immigrant costs on California
(FAIR 2004). Since these studies focus on entire households, however, they do not
necessarily account for the fact that a significant portion of this service benefits US
citizen children and is, thus, not a fiscal cost imposed by illegal immigrants directly.
Another important study released by the Urban Institute in 1995 showed aggregate
Medicaid and emergency care costs of $445 million annually in the seven states with
the highest concentration of undocumented immigrants7 (Clark et al. 1994).
Although the study was undertaken before 1996 legislation barred illegal immigrants
from significant health-care benefits, and the monetary value measured has not been
adjusted for 10 years of inflation, the range of findings that these three studies present
indicates that there has not been sufficient consensus regarding the health costs of
illegal immigrants. This reflects the conclusion reached by a Government Account-
ability Office (GAO) study which held that ‘until reliable information is available on
undocumented aliens and the costs of their care, accurate assessment of their
financial effect on hospitals will remain elusive’ (GAO 2004a).
A similar need for further research is found in estimating the costs of educating
illegal immigrant children. The CIS estimate released in 2004 indicated that
education costs $371 million per year at the federal level (Camarota 2004). The
estimate, however, did not include state-level expenditures on education which
account for the majority of education costs. In looking at state-level costs, the 2004
FAIR study found that illegal immigrants impose a $3.2 billion yearly cost on
education in California. As noted before, these studies focus on household
expenditures and do not take into account US citizen children as part of illegal
immigrant households. Finally, the Urban Institute study of 1995 found that
education was the highest public expenditure that illegal immigrants imposed,
accounting for a total of $3.08 billion dollars in the seven states surveyed, with
California bearing a burden of $1.3 billion annually. Thus, similar to health-care
costs, the monetary values found by the studies summarised here do not paint a
consistent picture. As a result, according to a GAO report on education, ‘the current
information available is not sufficient to quantify the costs of educating illegal alien
school-children’ (GAO 2004b: 1).
Finally, in examining incarceration costs, a study released by the Urban Institute in
2000 based on the initial estimates of the 1995 study indicated that 14,262 illegal
immigrants were identified among state prisoners in 1995 from California, Texas,
New York, Florida, Illinois, Arizona and New Jersey. Based on the costs of housing
single prisoners, the total cost of incarcerating illegal immigrant prisoners was $474.2
million per year in the seven states, with California facing a cost of $367.7 million
 Journal of Ethnic and Migration Studies 1049

(Clark and Anderson 2000). The 2004 FAIR study, on the other hand, reported that
incarceration cost California alone $1.4 billion in 2003. Consequently, the disparity in
measurements indicates that sufficient agreement has also not been reached as to the
incarceration costs of illegal immigrants. The general conclusion that can be drawn
from these figures, however, is that illegal immigrants do impose a distinct fiscal cost
in terms of health care, public education and incarceration.

Taxes
So do illegal immigrants’ tax contributions actually pay for the fiscal cost that they
generate? Unfortunately, this question not been adequately researched. This lack of
data is complicated by the fact that there is no means of discriminating tax revenues
collected from illegal immigrants alone from total tax revenues collected (Camarota
2004). The Urban Institute estimated in 1995 that illegal immigrants paid about $1.9
billion in taxes8 in the seven states studied ($732 million to California) and, in fact,
accounted for a marginal fiscal surplus at the aggregate level (Clark et al. 1994). Once
again, these numbers do not show a consistent pattern; nonetheless, considering that
the remainder of the US immigrant population paid $15.1 billion in income and
payroll taxes in 2004 (Camarota 2004), the trend seems to indicate that illegal
immigrants pay much less in taxes than legal immigrants given their relative
population. According to Passel (2005), 19 per cent of immigrant income and payroll
taxes were paid by undocumented immigrants in 2004 while undocumented
immigrants made up 29 per cent of the immigrant population in that year. Though
this could demonstrate the fact that illegal immigrants are enjoying benefits without
paying their share of tax revenue, it is also important to note that illegal immigrants
earn significantly less than legal immigrants and, thus, would pay less in taxes.
Data gathered by the Mexican Migration Project demonstrated that undocumented
immigrants do pay taxes; 66 per cent of undocumented migrants reported that their
employers withheld Social Security taxes from their pay and 62 per cent that
employers withheld income taxes (Massey 2005). Similarly, in a sample of
undocumented immigrants in Houston, Djajic (1997) found that 77 per cent paid
social security taxes and 73 per cent paid income taxes deducted from the general
pool. In addition, the Washington Post reports that, between 1990 and 1998, more
than $20 billion was unaccounted for in the Social Security fund; the government
believes that a significant portion of this payment came from illegal immigrants who
gave their employers false Social Security numbers (Sheridan 2001). Finally, illegal
immigrants have no choice but to pay excise taxes that are deducted directly from
purchases. Though further research is needed in this area, it would appear from the
limited studies that illegal immigrants do make tax contributions while using public
services. On the whole, however, it seems that illegal immigrants are a net fiscal cost
because estimates of their tax contributions do not match the costs they impose in
terms of public services.
1050 R. Nadadur
State v. Federal
Though there are varying estimates of the exact monetary fiscal impact of illegal
immigration, the relationship between the federal and state governments is at the
centre of the debate. In a speech in 2003, for example, California Senator Diane
Feinstein said that ‘the federal government has consistently failed to respond to the
needs of state and local communities struggling to stay afloat on account of
the growing costs of illegal immigration’ (FAIR 2004). Specifically, the bulk of tax
contributions from illegal immigrants go to the federal government; costs, on the
other hand, are imposed at the state and local levels. For example, the 2004 GAO
report on the costs of emergency health care to illegal immigrants indicated that state
and local governments absorb the lion’s share of the costs of providing uncompen-
sated emergency medical care to undocumented immigrants. In short, though studies
have been inconsistent as to the monetary value of the fiscal impact of illegal
immigrants, they have reached a general consensus that illegal immigrants do impose
a significant fiscal cost on state and local governments. While households headed by
native-born individuals are typically a fiscal burden at the state and local levels as well
(Espenshade 1995), the allocation of revenues and costs between the federal and state
governments must be proportionate. A report released by the National Research
Council in 1996 thus calls for ‘federal aid to states and local areas because of the effect
of illegal immigration on public service costs’ (Edmonson and Lee 1996: 9).

Conclusion
This paper has overviewed a range of issues regarding illegal immigration. While it is
difficult to draw an overarching conclusion from the information surveyed, one can
infer that, in terms of economic consequences, illegal immigration benefits the US,
especially when considering that the US labour market is segmented between a
primary and a secondary sector. Future immigration policy should recognise that
illegal immigration has a significant and positive impact on the US economy.
When considering fiscal impacts, however, it appears that illegal immigrants are a
net fiscal cost. Though additional research is necessary to determine the specific
monetary fiscal costs that illegal immigrants impose and the tax contributions that
are made, it is important to note that fiscal costs are disproportionately borne at the
state and local levels. Consequently, the fiscal cost of illegal immigration is also a
question of the allocation of resources between federal and state governments.

Notes
[1] Personal interview with Steven Camarota, 18 April 2006.
[2] In looking at the composition of the illegal immigrant population, one can generally divide
the population into two groups: those entering the labour market and those seeking refuge in
the United States from persecution based on political or religious beliefs (for more, see Passel
2005).
 Journal of Ethnic and Migration Studies 1051

[3] Personal interview with Steven Camarota, 18 April 2006.

[4] Personal interview, 28 March 2006. Daniel T. Griswold is Director of the Center for Trade
Policy Studies at the Cato Institute in Washington, DC.
[5] It is important to note that, while shielding may take place in the short term, maintenance of
low-wage jobs generally hinders the development of high-wage jobs in the future.
[6] Lau v. Nichols (1974) US Supreme Court Center. Online at www.justia.us/us/414/563/; Plyler
v. Doe (1982) Oyez. Online at: www.oyez.org/oyez/resource/case/309/.
[7] These seven states are: California, New York, New Jersey, Texas, Florida, Illinois and Arizona.
[8] This includes income taxes, state sales, taxes and property taxes paid by undocumented
immigrants.

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