wages of legal resident workers who are close substitutes in employment for the illegal aliens also decline. They suffer a loss in earnings that is not likely to be fully compensated by the decline in the prices of goods and services that illegal aliens produce or by increases in the return on their nonlabor assets. In short, many residents may gain a little at the much greater expense of a few. Historically, public policy has attempted to protect the interests of those upon whom such burdens fall and this analysis is not intended to suggest departures from this principle.

As will be shown below, apprehended illegal aliens tend to be low skilled. And during the first few years in the United States, immigrants in general tend to be less productive than native born persons of a similar age and schooling, as the immigrants are not familiar with the language, skills and customs relevant to U.S. labor markets. If the illegal aliens are in fact low skilled, then low skilled legal resident workers are likely to be close substitutes for them in employment.

Consequently, the increase in the

relative supply of unskilled workers brought about by the presence of illegal aliens would tend to

depress the real and money wages of unskilled workers.

But this same presence implies a decline in the proportion of skilled workers in the labor force, and the relative wages of skilled workers to unskilled workers will there fore tend to increase.

The lower real wages for all low skilled workers as a result of the illegal immigration of low skill workers could appear as either a slower growth in money wages or a deterioration in working conditions. The latter effect is more likely if there is a floor under money wages, for example, because of minimum wage legislation. Workers

can be expected to respond to a deterioration in working conditions in a manner similar to their response to lower

money wages.

The relative decline in wages in the occupations that are intensive in lower skilled illegal alien labor would encourage legal resident workers to leave these sectors, and this occupational change is sometimes referred to as the displacement effect. Some of these workers would go to other lower skilled jobs and tend to depress wages there. Others, however, would acquire training to qualify for higher skilled jobs, as the financial return to training has increased. While still others (particularly

the aged and married women with young children) would tend to drop out of the labor force.

The decline in the earnings and employment of low skilled workers would result in an increase in transfer payments. Experienced workers who become unemployed would qualify for unemployment compensation benefits. Some older workers would apply for social security. Low income families would qualify for Food Stamps, and possibly AFDC, among other programs.

In the past there has been much concern with the outflow of dollars from the United States. This arose because during a period in which the Government was attempting to defend fixed exchange rates, an increase

in the short-term net outflow of dollars could have serious balance of payments difficulties, and result in substantial manipulation of the domestic economy. In the current

era of flexible exchange rates, however, such problems disappear in the long run.

32/

There is also a concern among some that the "leakage"

of U.S. dollars due to immigrant remittances has an adverse effect on U.S. employment and output. This is not the case as ultimately other countries use these U.S. dollars to buy U.S. goods and services. As far as domestic output and employment are concerned, it does not matter whether a U.S. resident spends $100 in the United States or a foreigner who received this money from a U.S. resident spends $100 for U.S. export.

32/

The impact of the short run adjustment process is ambiguous.

Unemployment and Job Vacancies

There is substantial concern that illegal aliens reduce the number of jobs available for legal workers, and thereby create unemployment for legal workers. Some even imply that this occurs on a one-for-one basis. This view, however, is based on the assumption that there are a fixed number of jobs in the economy, and giving one person a job implies denying it to another. As long as relative wages can respond to changing relative supplies of different types of labor, an increase in the size of the illegal alien population per se will not increase unemployment in the long run. however, be some short-run impact as legal residents may have to engage in a somewhat longer job search process until they adjust to the new situation.

There may,

The unemployment impact is heightened when there is a floor under wages and working conditions. If illegals work at levels that just meet or violate Fair Labor Standards Act or Occupational Safety and Health Act provisions, but natives will not, employers would hire at least some illegals at legal residents' expense. Furthermore, the violation of

such standards undermines the effectiveness of those protections for native workers. The low skilled legal residents whose

productivity rests at the minimum

employment cost (the minimum wage plus the cost of
legally mandated fringe benefits and working conditions)
would have difficulty finding employment. They would
experience greater unemployment as they search for a job
opening. This adverse employment effect is likely to
be most severe for legal residents who are teenagers,
disabled, or clearly unskilled those who have the

lowest productivity.

11

Some unemployment from this source

is not transitional, and can persist for a long time especially if the legal minimum employment cost rises at least as fast as average wages in the economy.

The argument is sometimes advanced that illegal aliens do the jobs that all legal resident workers find so distasteful that these jobs would not be filled if 33/ In this view, illegal

there were no illegal aliens?

aliens are not substitutes in employment for legal workers because the latter would not accept the jobs the illegals fill. To attract legal workers to such jobs money wages and working conditions would have to be increased by so much that firms that now rely on illegal workers would go out of business or substantially change their conditions of employment through a substitution of capital

33/ The benefits received from income transfer programs may be sufficient to discourage legal workers from taking jobs that offer low wages and undesirable working conditions.