This essay is based on the working paper “Monopsony, Efficiency, and the Regularization of Undocumented Immigrants” by George J. Borjas and Anthony Edo.
More than 10 million undocumented immigrants currently live in the United States, representing about 3 percent of the population. In Europe, nearly 5 million undocumented immigrants—around 1 percent of the population—reside in various countries. The presence of such a sizable undocumented population has led many nations, including the United States, France, Germany, Spain, Italy, and Portugal, to consider or implement policies that regularize undocumented immigrants.
The first large-scale regularization policy in recent decades was implemented in France shortly after the election of François Mitterrand in May 1981. This was followed by the landmark 1986 reform in the United States under President Reagan, which granted legal status to 2.7 million undocumented immigrants. Italy and Spain also launched their own regularization programs in 2002 and 2005, respectively, providing legal status to hundreds of thousands of undocumented workers.
Although several countries have now enacted regularization policies, our understanding of their economic impact remains limited. Our analysis of France’s 1981 reform offers some of the first insights into how such policies affect labor markets and economic growth.
The vulnerability of undocumented immigrants
Undocumented immigrants live in fear of arrest, detention, or deportation. As a result, they face high mobility costs that limit their interactions with the broader society and restrict their economic opportunities. This extreme vulnerability gives employers significant market power, effectively reducing the bargaining power of workers. In many cases, this leads to labor market exploitation, with undocumented workers being paid significantly less than they would be if employers lacked such power.
The existence of this employer power affects employment levels for all workers, undocumented or not. By keeping wages low, it discourages new entrants from joining the labor market, resulting in lower employment levels than would otherwise occur. Regularizing the status of undocumented workers removes the fear of deportation and lifts mobility restrictions. Such a reduction in the market power of employers removes the labor market inefficiency that limited the employment of both undocumented and regular workers. Consequently, a regularization program is likely to lead to both higher employment and higher wages for all workers. Note, however, that while the more open labor market improves economic conditions for workers, it may also reduce employer profit margins due to higher labor costs.
France’s exceptional program of regularization
On May 10, 1981, François Mitterrand was elected president of the French Republic. Just over two months later, on July 23, the French government unexpectedly proposed a large-scale regularization policy. To be eligible for the reform, immigrants had to have arrived in France before January 1, 1981, and possess a work contract valid for at least one year or provide other proof of stable employment. The policy also encouraged employers to participate in the regularization program. Until February 25, 1982, employers who cooperated in the regularization of their undocumented workers were not prosecuted or penalized for unpaid social security contributions. After that date, hiring undocumented immigrants resulted in increased penalties, including possible jail time.
As of June 30, 1983, 149,226 applications for legalization had been filed and 131,360 permits had been issued, meaning that almost 90 percent of the applications had been approved. These newly regularized immigrants accounted for nearly 12 percent of the foreign-born labor force and about 1 percent of the total workforce in France. The regularized immigrants were predominantly male (83 percent), young (with 80 percent under the age of 32), and employed (95 percent). They were also concentrated in a few economic sectors, primarily in low-skilled jobs. Notably, almost two-thirds of those regularized lived in the Paris region, 15 percent in the Marseille region, and less than 5 percent in other French regions. The “regularization shock” was thus much stronger in the Paris region.
The economic impact of the program
Our empirical analysis of the 1981 French amnesty leverages the geographic concentration of the regularized workforce in Paris to assess its impact on the employment and wages of native workers and legal immigrants. We generally find positive effects across various groups, particularly among the male, low-skill workforce that includes most of the regularized immigrants. Specifically, the amnesty increased the employment rate of low-skilled French men in the Paris region by approximately 4 percentage points and raised their wages by around 3 percent. These results suggest that the reduced market power of firms benefits all workers, especially in sectors targeted by the regularization.
We also estimate the aggregate impact of the regularization using data on regional per-capita GDP in France. The program increased per-capita GDP in Paris by 1.6 percent, implying an increase in French national per-capita GDP of about 0.5 percent. This rise in aggregate income, which we call the “regularization surplus,” represents a permanent increase as it reduced an existing inefficiency in the French labor market.
An exceptional regularization policy that reduces the market power of employers stimulates employment, wages, and economic growth. In contrast, any factors that increase the market power of employers—such as a rise in the number of undocumented immigrants or stricter regularization requirements—are likely to worsen the economic opportunities for both undocumented and authorized workers, while benefiting employers. Ultimately, while regularization offers significant benefits to workers, it also involves complex trade-offs that can create both winners and losers among different stakeholders, making the question of whether to regularize undocumented workers a nuanced and contentious one.
Read the full paper here.
George Jesus Borjas is the Robert W. Scrivner Professor of Economics and Social Policy at the Harvard Kennedy School.
This essay is part of the Immigration Research Brief Series. Research briefs highlight economic effects of immigration and enhance our understanding of today’s immigration systems.
