An Economic Model to Estimate the Profits Resulting from the Employment of Illegal Aliens

by Claude Berrebi, Stephen J. Carroll, Jeffrey Sullivan

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Abstract

The employment of illegal aliens is a crime in the United States, and federal law provides for forfeiture of the proceeds from this offense. However, statutory law does not specify how to calculate such proceeds. This report presents an economic model, and a software program based on the model, that can assist law enforcement officials in determining the appropriate penalty to be levied on firms that knowingly employ undocumented workers. The model is based on the assumption that firms that employ illegal aliens do so because they would have to pay higher wages to attract sufficient legal workers to meet their needs; therefore, firms profit from the employment of illegal workers. The model estimates how much profit a firm would have realized if it had employed only legal workers; the difference between this and the firm's actual profit is the portion of the firm's profit that is attributable to the employment of illegal aliens. In addition to detailing this conceptual model, the authors describe a decision-support software program that incorporates the model's calculations.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    The Conceptual Model

  • Chapter Three

    Decision-Support Tool

  • Chapter Four

    Concluding Summary

  • Appendix A

    Detailed Steps Toward the Solution of the Production Function Parameters and Variables

  • Appendix B

    Detailed Steps Toward the Solution of Profit Maximization Assuming Variable Capital

  • Appendix C

    Detailed Steps Toward the Solution of Profit Maximization Assuming Fixed Capital

This research was sponsored by the Treasury Executive Office for Asset Forfeiture (TEOAF) and was conducted under the auspices of the RAND Institute for Civil Justice and the Safety and Justice Program within RAND Infrastructure, Safety, and Environment (ISE).

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