The debate on illegal immigration has been roaring for years now and both sides perpetually debate a few key points.    We focus one common portion of the debate, “cheap labor.”  In developing this project, we took great pain to find the right question and we hope that we have.  The question we want to answer is this: is cheap labor the same as a free lunch?  In the first day of our principles economics class we remember learning that there is no such things as a free lunch and that idea has been expanded and proven time and again throughout every course we have taken in the years since.  To begin this paper let us consider the core and principle ideas that we hold as economists to be self evident applying them to the concept of domestic “cheap labor.” 

      Wages determine the normative phrase “cheap” in reference to labor.  Let us remember that wages are very similar to prices in their behavior with a few idiosyncrasies.  Wages like prices are tied to money.  As we look at money let us understand that money has several functions.  Money is a medium of exchange and has no real power in and of itself.  Money functions as a representative of value as a unit of exchange, a store of value and a unit of account.  Artificially forcing down the price of a good does not really change the value of that good or its production costs.  As we look at the problem of “cheap labor,” we hear the cry of many that illegal immigrants do jobs that “Americans aren’t willing to do” and on its face this claim chills our spines because as economists we know that such a claim is false.  The truth is that Americans will not do these jobs at the same low wages that illegal aliens are willing to accept.  This begs the question in our mind: What effect does this have on other markets?  We have tried throughout this paper to look at the real impacts of this group who is willing to work below the market wages and we ask ourselves what impact if any does this have on our national economy.  The primary issue which arose in our research was the problem of externalities.  We found that “cheap labor” is a phrase which discusses only the wage, which laborers demand, but ignores the societal cost associated with that low wage.  If we took the time to consider this market in the same way we would address a goods market I believe that we would find a shocking result.  It would appear that we are subsidizing our domestic low skilled labor as well as their illegal competition.  It appears that the many current policies are, in fact, working against themselves when the issue of illegal immigration comes into the picture.  The rest of this paper will be dedicated to understanding the true cost of these illegal immigrants on the U.S. both socially and economically.

      The cost on taxpayers is almost impossible to calculate systemically with real accuracy due to the inherent nature of tracking a group of people who don’t want to be found and who operate whenever possible off the grid (Siskin, 2005).  A Congressional Research Service Memorandum on the topic suggests that honest intellectuals can disagree about the actual numbers because there is much uncertainty in this field.  They state that reliable sources have disagreed by millions on the actual number of illegal immigrants in the U.S. and disagree by billions on the cost those illegals impose on tax payers (Siskin, 2005).  While it may be difficult to determine the exact price tag, we can be sure that unchecked the problem will get worse.  According to the Pew Institute we have gone from an estimated 8.4 million illegal immigrants in 2000 to 12.4 million in 2007 (Jeffrey Passel, 2008).  The same study showed a small decrease in 2008 likely attributed to the massive increases in agents at the border during President Bush’s last term.  

      Though calculating the exact price is difficult, many have done excellent work estimating portions of the cost.  Robert Rector, a leading researcher in the field, estimates that illegal immigrants cost the government around $90 billion a year.  He goes on to say that over the last 20 years we have imported about $2 trillion worth of taxpayer liability in the form of low skilled immigrants(Rector, 2006).   One study looking only at the burden to the Federal tax payer (ignoring the vast burden on state and local government) found that illegal households run a net fiscal deficit of $2,736 at the federal level alone.  This is a reduction from similarly situated immigrants who, if legalized, are estimated to cost $6,000 or $7,000 a year. The average, non-immigrant federal tax payer runs a net deficit of only about $1 a year by the parameters of the same study (Center for Immigration Studies).  A similar study suggests that in 2007 the burden per immigrant was $9,139 at the federal level (Rubenstein, 2008).  FAIR, The Federation for American Immigration Reform has done extensive studies in this area and estimated that the local costs of illegal immigrants in 2004 and 2005 amounted to over $36 billion.  This study included only the 3 areas which could most accurately be tracked: public education, emergency room medical care and incarceration.  FAIR projects that if recent historic patterns where to continue unabated the costs could climb to over $100 billion a year by 2020.  The study looked at many individual states and found shocking costs associated with illegal aliens.  For example, they estimated from those three primary areas of local costs that Californian taxpayers shell out $1,183 per native household to defray the costs of illegal immigrants (Federation for American Immigration Reform).

      It is difficult to estimate the exact toll of illegal immigrants on all levels of government.   At first, when we began researching and reading the various estimates we immediately felt that they must be biased and exaggerated. However, as we continued to read from dozens of sources we found that the various aggregate estimates could easily be underestimating the true costs.  It is clear from these partial aggregate studies that the burden appears to be immense.  Now let us look at some the more detailed information, which really helped us to understand this problem. 

      We look first at our public school systems which are under immense pressure as they struggle to keep pace with the ever expanding number of students, many of whom require higher than average expenditures.  This increased burden on our education systems is due to the federal government’s failure to control our international borders.  According to the Department of Homeland Security there are an estimated 1.54 million illegal immigrants under the age of 18.  This figure does not include children of illegal immigrants who were born here in the States, often known as “anchor babies” (Michael Hoeffer, 2008). Out of the 6.3 million “unauthorized immigrant” families, (out of a national total of 116 million families) over 40% have children.  This adds up to a total of 4.7 million new students to be dealt with by our public education systems (Pew Hispanic Center Publication, 2005). Another study claims that 1.5% - 3% of all public school students are undocumented aliens and that between 4-5% where born to undocumented aliens nationwide (Urban Institute).  Rubenstein says that 19% of all students in public schools are immigrants or the children of immigrants (Including both legal and illegal).  He suggests that those students easily account for 25% of total educational spending because of the special services required such as language assistance which can cost $460 to $1,600 per pupil (Rubenstein, 2008).  A different report done by FAIR, estimated that the total costs of educating illegal immigrants and their children came to $28 billion in 2004 (Martin, 2005).

      Next let us look at our justice system which is congested with illegal immigrants who have shown a disrespect for and propensity to disregard the laws of this land by the very virtue of their presence.  While congress agreed that the cost to incarcerate inmates at the state and local level in 2002 was around $13 billion (US Congress, 2003) there are clearly greater costs.  This $13 billion does not attempt to cover the judicial costs, the apprehension costs, and the costs of increased law enforcement it mandates or the damages both physical and psychological to the victims of these crimes.   In cities with large illegal immigrant populations, the problems are vast and have a huge impact on native citizens. “In Los Angeles, 95 percent of all outstanding warrants for homicide (which total 1,200 to 1,500) target illegal aliens. Up to two-thirds of all fugitive felony warrants (17,000) are for illegal aliens.  A confidential California Department of Justice study, reported in 1995 that 60 percent of the 20,000-strong 18th Street Gang in southern California is illegal; police officers say the proportion is actually much greater” (Donald, 2004). According to the Iowa congressman, Steve King, 80% of meth in the U.S. comes across our southern border on the backs of illegal immigrants not to mention the pressures on our society from the 12 murders, 13 drunken driving deaths and 8 sex crimes against minors which illegal aliens are responsible for each and every day (King, 2006).  A corollary of illegal immigration is the problem of substances which are transported across the border on the backs of illegal immigrants.  In fiscal year 2006 US Customs and Border Patrol confiscated 439,748K of Marijuana, 28,513K Cocaine, and 1,345K Heroin which adds up to 2.2 million pounds of illegal narcotics (US Customs and Boarder Protection Agency, 2006). 

      Our Medical system is under an unbearable strain due to the illegal immigrants.  Between 1993 and 2003, 60 hospitals have closed in California alone because such a large percentage of their services where becoming unpaid and another 24 hospitals are on the verge of closure, according Dr. Cosman (Madeleine Pelner Cosman, Illegal Aliens and American Medicine, 2005).  As of 2003 and 2004 about 32% of foreign born children are on public insurance and another 54% are uninsured.  U.S. born children of immigrants aren’t any better with about 60% on government insurance and another 16% uninsured (Pati & Danagoulian, 2008).  Another source says that over 60% of all illegal immigrants are uninsured (Martin E. , 2007).  Whether uninsured or on public insurance the burden eventually falls on some section of American society.  The burden from uninsured fall heaviest on the poor since the hospitals bear the costs and are able to provide fewer services to the native poor.  The burden from those on public insurance would be spread among taxpayer’s at all levels of government.  In 2000, 23% of the UCC in Southwestern border hospitals (approximately $190 million) was allocated to treat undocumented immigrants for emergency medical services (Coustasse, Lorden, Nemarugommula, & Singh, 2009).  California like other states has tried to defray the burden placed on their hospitals by the failures of the federal government.  Proposition 187, a bill designed to allow organizations to verify legal status before performing services, passed overwhelmingly on November 8, 1994   (Martin P. , 1999).  The propsition was soon challenged in court and ruled unconsitutional  (Ruth S. Adams, 2000).  Yet again the citizens and taxpayers are required to carry the burden.

      Our social safety net and welfare system are at the mercy of illegal immigration both through the abuse of the system and through the displacement of Americans at the low end of the labor market. This burden on our welfare system translates into a burden on the taxpayer, which is much heavier than it would otherwise be.  The stresses of illegals on the system act to pervert native’s use of these programs and perhaps more importantly prevents better allocation of these funds.  Organizations like the NILC brag on their website that they have worked tirelessly to restore $12 billion in Supplemental Security Income (SSI) and more than $800 million in food stamps to immigrants(Sophia Fund, 2004).  The number of legal and illegal immigrants on welfare programs like SSI has risen from around 3% in 1982 to almost 25% in 2003 (Madeleine Pelner Cosman, Spring 2005).  Children born to illegals are considered citizens and the parents immediately qualify for legal permanent status.  Beyond these “legal immigrants” who are legal only because of loopholes allowing them to convert their illegal status to legal status there is also the increased need for these programs by native citizens.  In economics, we often discuss behavior at the margin and when we look at the lowest segment of the American economy we see a very sensetive group on the margin.  With a drop in wages due to the abundance of “cheap labor” and the increased unemployment caused by an excessive supply unskilled labor.   The domestic laborers are displaced and those near the margin are forced onto the government rolls.  An indepth study would be required to determine the exact number of natives forced into excepting government aid but it is clear that the number is large.  One study projects that there is a redistribution of wealth away from this bottom bracket equal to 2% of GDP; that is not to mention that there are now more mouths chasing a piece of the significatly smaller pie (Borjas, 2006). 

      Illegal immigration truly does puts it greatest burden on the American working poor. According to a Heritage Foundation Study, low-skill households create a net cost to taxpayers of $22,449 (expenditures of $32,138 minus $9,689 in taxes) (Robert Rector).  The study concludes, “Households headed by persons without a high school diploma are roughly 15 percent of all U.S. households. Overall, these households impose a significant fiscal burden on other taxpayers.”  While this may seem like irrelevant information take a moment to consider the weight of this burden.  According to the Pew Hispanic Center about 49% of “unauthorized immigrants” (Illegal Aliens) have less than a high school diploma and a full 75% have no more than a high school education (Passel, 2005). Considering the same data for native born citizens a mere 9% fail to earn a high school diploma and a full 59% have obtained some college education.   With illegal immigrants estimated to make up 4% of our current population.  With a little extrapolation we can see that this bottom 15% has a large immigrant component with six out of fifteen persons in this category falling under the category of immigrant and around two of every fifteen are undocumented or illegal immigrants. American’s in the unskilled labor market are getting pushed out and those who remain pay a price in the form of significantly lower wages.  The wage fell by 7.4% for native high school dropouts as a result of immigration according to a study which looked across the period of 1980 through 2000 (Borjas, 2006).  According to the same study, their model suggested that in the year 2000 wage earners lost $278 billion dollars in wages.  He went on to project that $300 billion would be made by employers of illegal immigrants creating an unnatural redistribution of wealth away from low skilled laborers (Borjas, 2006).  While employers gain a limited benefit from “cheap labor” the laborers lose almost as much in reduced wages alone.  Some have even shown fear that the benefits of the new stimulus plan will be limited as illegal immigrants take up to 15% of the 2 million newly created construction jobs (Camarota, 2009)(Passel, 2005).

      When unskilled laborers are forced down in wages or out of a job altogether we end up with more people dependant on government but this is not the only price the American working poor pay for illegal immigration.  This bottom bracket of American Society is also the group who suffer most from the other costs.  The poor lose the most from the burden placed on public schools, emergency rooms and the social welfare system.  No matter how you cut it there is necessarily a negative correlation between the standard of living for native workers especially those at the unskilled end of the spectrum and illegal immigration in this country. 

      The labor market is not the only market affected.  The $300 billion in employer profits due to this reduced labor costs gives companies employing illegals a comparative advantage over those employing legal labor.  This generates a distortion in both the markets for goods and labor.   Furthermore, aside from the effects and alterations of the labor market and the goods market there is also an impact on the financial markets.  Immigrants from Mexico send massive amounts of money from the US economy to Mexico in the form of remittance.  Those remittances are linked to migration patterns.  Remittances in some countries can have major macroeconomic impacts; resources are needed to be able to track such transfers in order to predict the impacts and to be able to counter them.  In fact in 2003 remittances  where the second largest source of external finance in Mexico second only to oil sales and equaled more than $13 billion dollars that year (Hernández-Coss, 2004). When combined with absorption of jobs created by economic stimulus packages this group could represent a significant leakage.

      When addressing the problem of illegal immigration things become more complicated by laws which reward illegal immigration; it is a problem of labeling.  Each year 300,000 to 350,000 “anchor babies” are born in the United States becoming citizens.  As they become new citizens their parents and siblings become instant legal permanent residents (Madeleine Pelner Cosman, Illegal aliens and American Medicine, Spring 2005).  60% of Immigrants are legal permanent residents as of 2004, which add up to almost 22 million people compared to a little over 10 million who were illegal immigrants (Pew Hispanic Center Publication, 2005).    A vast majority of these new legal permanent residents do not have high school educations.  These “anchor babies” are US Citizens and qualify for federal benefits.  One example given shows a family who came here illegally and had 2 babies costing over $300,000 in medical bills. This immediately gave several family members legal permanent status and over $12,000 a year in welfare funding (Madeleine Pelner Cosman, Spring 2005).  None of these costs are counted when looking at the issue of illegal immigration because the families are considered legal immigrants and the babies are considered citizens even though they would not be here if their parents had not come illegally.  This means that all estimates of the costs of illegal immigrants are underestimating the true costs on our society.  If these illegal immigrants had not been here illegally then we would not have these perpetual costs.

      It is clear by now that there is a great toll on American Society from illegal immigration but what are our alternatives?  The Center for American Progress raised the question: Does the cost of illegal immigrants justify the cost of solving the problem?  In a study of the costs of such action they found that the costs of sealing the border would require an increase in border security spending of $1.25 billion a year.  They further projected that capture and deportation of the present pool of illegal immigrants would cost around $200 billion over 5 years.  This works out to around $40 billion a year to bring the total number of “unauthorized immigrants” to near zero (Rajeev Goyle, 2005).  It is clear from our research that this cost would be significantly less than the cost of doing nothing.

      In conclusion, illegal immigration has a massive and incalculable net cost on this economy. Perhaps the greatest cost would be the massive distortions and leakages preventing normal market conduct across the economy.  This expenditure is certainly greater than the cost of sealing our border and very likely double the $40 billion dollars price tag that some estimates say it would take to solve the problem.  Some long run estimates would place the lifetime savings of implementing a strict sealed border and deportation policy at $1.2 Trillion (Rector, 2006) (Rajeev Goyle, 2005). Illegal immigration puts pressure on the poorest segments of society creating greater wealth disparity and causing increased numbers of native laborers to rely on the government.  The various studies cited thus far place the consensus cost on tax payers in the ballpark of $65-100 billion dollars a year and climbing.    This estimated taxpayer burden must ignore the reciprocal costs such as the social and economic costs of native low wage earners who are forced onto taxpayer support by the market distortions caused by this problem.  Finally, we cannot forget the most difficult cost to calculate; the direct effects on native citizens which includes distortion of political representation, damages from criminal immigrants, and the damage done to native citizens who lose access to public goods like hospitals and education.  We ignored what we felt to be a self evident national security issue that arises from a porous border but please do not forget the extensive and incalculable costs associated with such risk.  Essentially after all of the research we have done on the issue and after checking factual assertions against various sources we have come to the decision that there can be no reasonable economics justification not to spend the necessary funds to seal the border and encourage or force those here illegally to leave.

       We find it patently unfair to the unskilled laborers and to the taxpayers here in the states to mandate a massive cost and lower standard of living in order to support a failed federal government policy.  International borders, immigration and trade are the sole duty and responsibility of the federal government and because of their colossal failure trillions of dollars of productivity have been leached out of this economy at the cost of a lower standard of living for Americans.  The federal government is so focused on all of its assumed and created powers that it has failed to meet its enumerated responsibility of protecting its citizen’s life liberty and property from threats both foreign and domestic.  We urge our representatives to remember your oath and our fellow citizens to be vigilant in demanding that the federal government live up to its enumerated duties. 

Works CitedBorjas, G. J. (2006). THE IMPACT OF IMMIGRATION ON THE LABOR MARKET. Harvard University.

Camarota, S. A. (2009, February). Senate Stimulus: 300,000 Jobs for Illegals? - 1 in 7 New Construction Jobs Could Go to Illegal Immigrants. Retrieved April 5, 2009, from

Center for Immigration Studies. (2004). The High Cost of Cheap Labor: Illegal Immigration and the Federal Budget. Retrieved April 5, 2009, from

Coustasse, A., Lorden, A. L., Nemarugommula, V., & Singh, K. P. (2009). Uncompensated Care Cost: A Pilot Study Using Hospitals in a Texas County. Hospital Topics , 87 (2), 3-12.

Donald, H. M. (2004). The Illegal-Alien Crime Wave. City Journal. The Manhattin Institute.

Federation for American Immigration Reform. (n.d.). Retrieved from

Hernández-Coss, R. (2004). Lessons from the U.S.-Mexico Remittances Corridor on Shifting from Informal to Formal Transfer Systems. Washinton D.C.: World Bank.

Jeffrey Passel, D. C. (2008). Trends in Unauthorized Immigration: Undocumented Inflow Now. Pew Hispanic Center.

King, C. S. (2006, may 5). Biting the Hand That Feeds You. Retrieved april 5, 2009, from

Madeleine Pelner Cosman, P. E. (2005). Illegal Aliens and American Medicine. Journal of American Physicians and Surgeons , 10 (1), 6-10.

Madeleine Pelner Cosman, P. E. (Spring 2005). Illegal aliens and American Medicine. Journal of American Physicians and Surgeons , 10 (1), 6-10.

Martin, E. (2007, march). Over the river: treating the flood of uninsured illegal immigrants threatens to. Business North Carolina , 27 (3).

Martin, J. (2005). Retrieved from

Martin, P. (1999). International Migration Review , 29 (1), 255-263.

Michael Hoeffer, N. R. (2008). Estimates of the Unauthorized Immigrant Population Residing in the United States; Janurary 2008. Office of Immigration Statistics.

Passel, J. (2005). Unauthorized Migrants: Numbers and Characteristics. Pew Hispanic Center.

Pati, S., & Danagoulian, S. (2008). Immigrant Children's Reliance on Public Health Insurance in the Wake of Immigration Reform. American Journal of Public Health , 98 (11), p2004-2010.

Pew Hispanic Center Publication. (2005). “Unauthorized Migrants: Numbers and Characteristics” . Retrieved from

Rajeev Goyle, D. A. (2005). Deporting the Undocumented: A Cost Assessment . Center for American Progress.

Rector, R. (2006, October 29). Lou Dobbs Tonight. Encore Presentation: Broken Borders. (L. Dobbs, Interviewer)

Robert Rector, e. a. (n.d.). “The Fiscal Cost of Low-Skill Households to the U.S. Taxpayer”. Retrieved from

Rubenstein, E. S. (2008). Retrieved from www.thesocialcontract.com

Ruth S. Adams, F. D. (2000). Immigration: Proposition 187, Five Years Later. Bulletin of the American Academy of Arts and Sciences , 53 (5), 28-50.

Siskin, A. (2005). Cost Estemates of Unauthorized (illegal) Immigration. Congressional Research Service.

Sophia Fund. (2004). The Newsletter of the Ms. Foundation for Women .

Urban Institute. (n.d.). Retrieved from

US Congress. (2003). Concurrent Resolution 95. Congression Record: March 31, 2003 (Senate), (pp. S4579-S4589).

US Customs and Boarder Protection Agency. (2006). Performance and Accountability Report.  

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