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

39 Pages Posted: 9 Nov 2009

See all articles by Christian Schluter

Christian Schluter

University of Southampton - Division of Economics

Jackline Wahba

University of Southampton, Department of Economics; IZA Institute of Labor Economics

Abstract

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.

Keywords: non-parametric estimation, control functions, selection, counterfactuals, illegality effects, illegal migration, intermediate outcomes, Mexican Migration Project

JEL Classification: J61, J30, J40

Suggested Citation

Schluter, Christian and Wahba, Jackline, Illegal Migration, Wages, and Remittances: Semi-Parametric Estimation of Illegality Effects. IZA Discussion Paper No. 4527. Available at SSRN: https://ssrn.com/abstract=1501963

Christian Schluter (Contact Author)

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44 2380 59 5909 (Phone)
+44 2380 59 3858 (Fax)

HOME PAGE: www.economics.soton.ac.uk/staff/schluter/

Jackline Wahba

University of Southampton, Department of Economics ( email )

Southampton, SO171BJ
United Kingdom
+44 23 8059 3996 (Phone)

HOME PAGE: http://https://sites.google.com/site/jackiewahba/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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