On the macroeconomic and welfare effects of illegal immigration

This paper uses a dynamic general equilibrium model with labor market frictions to explore the economic consequences of illegal immigration. In the baseline model, native workers and illegal foreign workers compete for jobs in the same market, but serve as imperfect substitutes in production. The calibrated model generates a U-shaped relationship between long-run domestic consumption and the population share of illegal immigrants. After taking into account both consumption and leisure, I found that an increase in illegal immigration can generate significant welfare gains for the natives. The baseline model is then extended to include heterogeneous workers in the domestic population.