Understanding the Effects of Legalizing Undocumented Immigrants

Abstract

This paper studies the legalization of 600,000 immigrants by the unexpectedly elected Spanish government following the terrorist attacks of 2004. We estimate that each legalized immigrant increased payroll-tax revenues by 4,801 euros. This takes into account both the direct impact of legalized immigrants and heterogeneous labor-market effects. The paper documents how the policy change deteriorated the labor-market outcomes of a selected group of low-skilled natives,improved the outcomes of high-skilled workers, and how some low-skilled immigrants moved away from high-immigrant locations. Taking into account both selection and internal migration is crucial to understand the consequences of amnesty programs fully.