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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. Rapoport, Hillel & Docquier, Frederic, 2006. "The Economics of Migrants' Remittances," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
    2. Gordon H. Hanson, 2006. "Illegal Migration from Mexico to the United States," NBER Working Papers 12141, National Bureau of Economic Research, Inc.
    3. Richard W. Blundell & James L. Powell, 2004. "Endogeneity in Semiparametric Binary Response Models," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 655-679.
    4. 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.
    5. 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.
    6. Orrenius, Pia M. & Zavodny, Madeline, 2005. "Self-selection among undocumented immigrants from Mexico," Journal of Development Economics, Elsevier, vol. 78(1), pages 215-240, October.
    7. Kossoudji, S.A. & Cobb-Clark, D.A., 1996. "Coming Out of the Shadows: Learning About Legal Status and Wages from the Legalized Population," CEPR Discussion Papers 347, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    8. 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.
    9. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    10. Angelucci, Manuela, 2005. "U.S. Border Enforcement and the Net Flow of Mexican Illegal Migration," IZA Discussion Papers 1642, Institute for the Study of Labor (IZA).
    11. repec:cup:cbooks:9780521785167 is not listed on IDEAS
    12. Peter Hall & J. D. Opsomer, 2005. "Theory for penalised spline regression," Biometrika, Biometrika Trust, vol. 92(1), pages 105-118, March.
    13. repec:cup:cbooks:9780521780506 is not listed on IDEAS
    14. 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.
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