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Illegal Migration, Wages, and Remittances: Semi-Parametric Estimation of Illegality Effects

  • Schluter, Christian

    ()

    (University of Southampton)

  • Wahba, Jackline

    ()

    (University of Southampton)

Registered author(s):

    We consider the issue of illegal migration from Mexico to the US, and examine whether the lack of legal status causally impacts on outcomes, specifically wages and remitting behavior. These outcomes are of particular interest given the extent of legal and illegal migration, and the resulting financial flows. We formalize this question and highlight the principal empirical problem using a potential outcome framework with endogenous selection. The selection bias is captured by a control function, which is estimated non-parametrically. The framework for remitting is extended to allow for endogenous regressors (e.g. wages). We propose a new re-parametrisation of the control function, which is linear in case of a normal error structure, and test linearity. Using Mexican Migration project data, we find considerable and robust illegality effects on wages, the penalty being about 12% in the 1980s and 22% in the 1990s. For the latter period, the selection bias is not created by a normal error structure; wrongly imposing normality overestimates the illegality effect on wages by 50%, while wrongly ignoring selection leads to a 50% underestimate. In contrast to these wage penalties, legal status appears to have mixed effects on remitting behavior.

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    File URL: http://ftp.iza.org/dp4527.pdf
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    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4527.

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    Length: 39 pages
    Date of creation: Oct 2009
    Date of revision:
    Handle: RePEc:iza:izadps:dp4527
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    1. Sherrie A. Kossoudji & Deborah A. Cobb-Clark, 2002. "Coming out of the Shadows: Learning about Legal Status and Wages from the Legalized Population," Journal of Labor Economics, University of Chicago Press, vol. 20(3), pages 598-628, July.
    2. Pia Orrenius & Madeline Zavodny, 2000. "Self-selection among undocumented immigrants from Mexico," Working Papers 0005, Federal Reserve Bank of Dallas.
    3. James Heckman & Salvador Navarro-Lozano, 2004. "Using Matching, Instrumental Variables, and Control Functions to Estimate Economic Choice Models," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 30-57, February.
    4. Manuela Angelucci, 2012. "US Border Enforcement and the Net Flow of Mexican Illegal Migration," Economic Development and Cultural Change, University of Chicago Press, vol. 60(2), pages 311 - 357.
    5. Alberto Abadie & Guido W. Imbens, 2006. "Large Sample Properties of Matching Estimators for Average Treatment Effects," Econometrica, Econometric Society, vol. 74(1), pages 235-267, 01.
    6. Peter Hall & J. D. Opsomer, 2005. "Theory for penalised spline regression," Biometrika, Biometrika Trust, vol. 92(1), pages 105-118, March.
    7. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    8. repec:cup:cbooks:9780521785167 is not listed on IDEAS
    9. Richard W. Blundell & James L. Powell, 2004. "Endogeneity in Semiparametric Binary Response Models," Review of Economic Studies, Wiley Blackwell, vol. 71, pages 655-679, 07.
    10. Gordon H. Hanson, 2006. "Illegal Migration from Mexico to the United States," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 869-924, December.
    11. Kaivan Munshi, 2003. "Networks In The Modern Economy: Mexican Migrants In The U.S. Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 118(2), pages 549-599, May.
    12. repec:cup:cbooks:9780521780506 is not listed on IDEAS
    13. Rapoport, Hillel & Docquier, Frederic, 2006. "The Economics of Migrants' Remittances," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
    14. Francisco L. Rivera-Batiz, 1999. "Undocumented workers in the labor market: An analysis of the earnings of legal and illegal Mexican immigrants in the United States," Journal of Population Economics, Springer, vol. 12(1), pages 91-116.
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