1. Intelligent Immigration
Reform:
Using a Pareto Efficient Model to Achieve Wage
Parity Between Low Skill Immigrants and US Born
Workers
Derek M. Welski & Brad Stanger
01/11/2011
WWS 307: Term Paper
Professor Bogan

2. 1
Introduction:
One of the major policy issues concerning the welfare of immigrants is the persistent wage gap
between Latin American immigrant workers and their US-born counterparts.1
Some optimistic observers
estimate that the recent influx of Mexican laborers into the U.S. labor market could follow structural
assimilation characteristics akin to early “great” assimilations.2
This “immigrant optimism hypothesis”
has largely shaped our understanding of the processes of assimilation in the United States. Much of the
debate suggests that immigrant wages should converge with that of native-born workers within one or two
generations following arrival.3
Along these lines, between generations, human capital endowments should
progressively match US born workers—helping to achieve wage parity, as a measure of economic
assimilation.4
However, upon further analysis, there is little evidence that Latin Americans reach
economic parity with non-Hispanic Caucasians in the United States. Perhaps most worrisome,
intergenerational progress for Mexican Americans appears to stagnate after the second generation.5
The central aim of this paper is to examine the question of wage convergence between
immigrants and native workers in the United States. In doing so, this paper strives to reach a Pareto
efficiency: a solution where key stakeholders, under a given policy intervention, are better off and none
are worse off under available alternatives. This study aims to contribute to the immigration debate in
using the Pareto efficient model, a value-neutral theory, to measure the prospects for full wage
assimilation under certain original public-policy recommendations.6
This paper explores how our public
policy recommendations may achieve Pareto solutions—eliminating the wage gap between native
workers and immigrant workers from low-skill, low wage economies from Latin America, and without
impairing any stakeholders.
Methodology:
In order to identify how our policy recommendations improve the wage outcomes of all relevant
parties and achieve Pareto efficiency, this paper identifies relevant stakeholders impacted by the influx of
unskilled laborers from Latin America. In our simplified model, the first stakeholder, the US-born
worker, may be identified as either a. the highly skilled worker and most likely to benefit from low cost
labor from sending countries or b. the low skill worker that may experience depressed wages due to
downward pressure on earnings. In the interests of Pareto optimality, for example, we suggest that
1
The Economist, “Let Them Have A DREAM,” The Economist, November 25, 2010,
http://www.economist.com/node/17575113.
2
James Clifford, “Diasporas,” accessed February 23, 2015,
https://sites.google.com/site/musicoftheindianocean/home/ethnomusicological-concepts/exploring-
diaspora/summary-of-diasporas-by-james-clifford.
3
Stuart Anderson, Immigration (ABC-CLIO, 2010).
4
Nina Glick Schiller, Linda Basch, and Cristina Szanton Blanc, “From Immigrant to Transmigrant: Theorizing
Transnational Migration,” Anthropological Quarterly, 1995, 48–63.
5
Jeff Groger and Stephen J. Trejo, Falling Behind or Moving Up?: The Intergenerational Progress of Mexican
Americans (Public Policy Institute of California San Francisco, CA, 2002),
http://repec.ppic.org/content/pubs/report/R_502JGR.pdf.
6
Javier Ortega, “Pareto-Improving Immigration in an Economy with Equilibrium Unemployment,” The Economic
Journal 110, no. 460 (2000): 92–112.

3. 2
revenue from a legalized immigration process be used to compensate low-skill workers for any losses
associated with immigration. We identify the second group as immigrants living in the receiving country
and already working in the US, and their second-generation children.
Given the limited scope of this paper, this thesis relies upon theoretical and qualitative
characterizations of the wage gap issue. This paper begins by: i. modeling wage market inflation and
utilizes the Cobb-Douglas production function as it relates to immigration and intergenerational wage
attainment; ii. surveying recent literature and the relevant context surrounding the wage gap problem and
iii. concluding with suggested policy interventions that aim to achieve Pareto efficiency.
The Wage Effect Question:
The traditional model assumes that low skill immigrant labor is a perfect substitute for native US
low skill labor. Under these conditions, the standard model is as follows:
In this classic model, the immigrant receiving society, in this case the US, benefits overall by the
addition of area A. Area B, while accruing to immigrants, is also potentially a societal gain if those
immigrants choose to remain in the US. The contentious aspect of this diagram, however, is area C, which
was formerly part of the wage of native US labor and is now part of the payoff of US firms that have
cheaper labor.
However, given the relative skill level of each set of workers, Economists Ottaviano & Peri argue
that unskilled immigrants, especially from Mexico, serve as complements to labor, thus increasing the
marginal productivity of US native workers, and potentially even increasing the wages of low skill US
workers.7
In the traditional model, the production function of the US treats labor as uniform:
(1) Y = ALα
Kβ
7
Gianmarco I. P. Ottaviano and Giovanni Peri, Rethinking the Gains from Immigration: Theory and Evidence from
the U.S., Working Paper (National Bureau of Economic Research, October 2005),
http://www.nber.org/papers/w11672.

4. 3
where (1) is a traditional Cobb-Douglas production function, Y is the aggregate production of the US
economy, A is total factor productivity, L is the supply of labor, and K is the supply of capital. α & β are
constants reflecting the relative effects of labor and capital on production.8
In (1) we see that additional units of capital act as complements to labor, where an additional unit
of labor is always multiplied by A*Kβ
after being raised to the alpha. However, the addition of low skilled
labor is treated as a substitute for existing labor, indeed increasing production, but not improving the
marginal productivity of labor. In fact, because we traditionally assume that there is a decreasing marginal
productivity of labor, as we see in Figure 1, additions to labor will tend to reduce the marginal
productivity of labor.
If, however, we change this production function as in Ottaviano & Peri, we achieve a very
different result:
(2) Y = AL1
α
L2
γ
Kβ
In this model, we treat low skill immigrant labor as a separate component of the production function. In
popular parlance, this is tantamount to saying that the jobs done by immigrants are jobs that Americans
did not want to do, or were unwilling to do, in the first place. In this new model, increases in L2,
immigrant labor (where γ>0), increase the marginal productivity of labor in the same way that capital
does. This in turn alters the 'traditional' model of immigration and labor market models considerably.
When a firm is hiring, they use the Marginal Revenue Product of Labor (MRP) and set this equal
to the Marginal cost of labor, that being the Wage (W), where MRP is a function increasing in the
Marginal Productivity of Labor (MPL). When MRP increases for a given firm, it will tend to hire more,
as its demand for labor shifts out, as shown below:
However, when immigration is a phenomenon affecting the aggregate economy, the supply of
labor can no longer be taken as perfectly elastic, and increases in demand for labor by the firm necessarily
result in a higher wage.
8
Hendrik S. Houthakker, “The Pareto Distribution and the Cobb-Douglas Production Function in Activity
Analysis,” The Review of Economic Studies, 1955, 27–31.

5. 4
As we see in figure 3, the supply of labor is upward sloping, and as MPL rises and MRP rises, the
demand for labor from firms will shift out, and the wage will rise in the aggregate economy for native low
skilled labor. It is important to note that this diagram excludes immigrant labor, L2, and focuses only on
native labor, L1.
The logical question is whether or not it is reasonable to treat immigrant labor as a complement
rather than a substitute. If true, we would expect to see this reflected in the data. However, it is very
difficult to determine the absolute effect of immigration on the wages of US workers because there are
many factors contributing to wage fluctuations: including changes in technology, returns to education,
and outsourcing to other countries, to name a few factors As explored below, economists and other
researchers have published analyses to assess this effect.
Hanson et al. used border enforcement as a proxy for influxes of immigrants, and found no
connection between the level of enforcement and the wages of low skill US workers in nearby towns.9
He
did find however that increased enforcement lowered wages in Mexican towns near the border,
supporting the hypothesis that immigrants provide a different class of labor.
David Card and Ethan Lewis both argue that immigrants have had a negligible effect on the
wages of native workers using empirical studies.10
Meanwhile George Borjas uses a theoretical
framework that treats immigrant labor as relatively substitutable, that the short-run effect of immigration
is a depression in wages, and the long-run effect is negative if immigrants send home remittances, which
we know they do.11
He is, however, careful to point out that in the empirical realm, the effect of
immigration on wages is less clear.
Ottaviano & Peri conclude their analysis by estimating that the immigration from 1990-2000, a
very large immigration equal to 8% of the US labor force in 1990, increased wages of the average native
9
Gordon H. Hanson, Raymond Robertson, and Antonio Spilimbergo, Does Border Enforcement Protect U.S.
Workers from Illegal Immigration?, Working Paper (National Bureau of Economic Research, March 1999),
http://www.nber.org/papers/w7054.
10
David Card, Is the New Immigration Really So Bad?, Working Paper (National Bureau of Economic Research,
August 2005), http://www.nber.org/papers/w11547; Ethan Lewis, Local, Open Economies within the U.S.: How Do
Industries Respond to Immigration?, Working Paper (Federal Reserve Bank of Philadelphia, 2003),
https://ideas.repec.org/p/fip/fedpwp/04-1.html.
11
George J. Borjas, The Economic Progress of Immigrants, Working Paper (National Bureau of Economic
Research, April 1998), http://www.nber.org/papers/w6506.

6. 5
born worker by between 2% - 2.5%.12
However, it lowered wages for workers without a high school
degree by 1% and increased wages for those with a high school degree or higher by 3% - 4%.13
This is a logical result when considering the educational composition of low skill immigrants.
Borjas et al. show that 63% of Mexican-born workers in the US were high school dropouts as of 2000.14
As an aside, for those who were not high school dropouts, we can only speculate as to the relative quality
of the Mexican and the US school systems. Looking at native workers, the high school drop-out figure is
only 8.3%. So indeed it may be the case that for most US workers, immigrants function as more of a
complement, but in the case of high school dropouts, they are substitutes.
In terms of policy recommendations, it seems that the practical takeaway from research on wage
effects is that they do exist, in some form, for low skill workers, especially native high school dropouts.
However, the effects are smaller than many policy makers currently think, and indeed there seems to be a
strong positive wage effect for more skilled workers.
The Wage Gap Problem:
One of the major policy questions concerning the welfare of immigrants is the persistent,
intergenerational wage gap between Mexican workers and their native counterparts. As expected, new
immigrants tend to earn less than native workers. However, more problematic is that this wage gap
continues to the next generation. Furthermore, the rate of convergence of low skill immigrants with US-
born worker is also very low.15
Indeed Borjas et al. point out that the gap is substantial and robust across
generations, but it does appear that the explanation for the majority of the gap lies in differences in
educational attainment, human capital.16
Some optimistic observers note that the influx of Mexican laborers over the last few decades into
the U.S. labor market should follow structural assimilation characteristics akin to earlier immigrants from
southern Europe, eventually approaching the labor market status of non-Hispanic Caucasians.17
However,
the vast majority of literature shows that there is in fact little evidence that Mexican Americans are
reaching economic parity with non-Hispanic Caucasians. In particular, concerned authors note that
intergenerational progress for Mexican Americans appears to stall after the second generation. Richard
Fry observes, “marginal movement forward from the first generation to the second… is not nearly
powerful enough to bring the second generation to parity with Caucasian workers.”18
Referred to as the
“immigrant optimism hypotheses”, sociologist Gretchen Livingston notes that the expected curvilinear
pattern of structural assimilation, characterized by relatively high second-generation educational
outcomes and wage improvement, is largely not observed in the Mexican immigrant cohort at an
12
Ottaviano and Peri, Rethinking the Gains from Immigration.
13
Ibid.
14
George J. Borjas and Lawrence F. Katz, The Evolution of the Mexican-Born Workforce in the United States,
Working Paper (National Bureau of Economic Research, April 2005), http://www.nber.org/papers/w11281.
15
George J. Borjas, The Analytics of the Wage Effect of Immigration, Working Paper (National Bureau of Economic
Research, March 2009), http://www.nber.org/papers/w14796.
16
Borjas and Katz, The Evolution of the Mexican-Born Workforce in the United States.
17
Leo R. Chavez, “Immigration Reform and Nativism: The Nationalist Response to the Transnationalist Challenge,”
Perspectives on Las Américas: A Reader in Culture, History and Representation, 2003, 418–29.
18
Richard Fry, “Education May Boost Fortunes of Second-Generation Latino Immigrants,” Migrationpolicy.org, 2,
accessed February 23, 2015, http://www.migrationpolicy.org/article/education-may-boost-fortunes-second-
generation-latino-immigrants.

7. 6
intergenerational level.19
Theoretically, intergenerational improvements should include language acquisition, U.S.
education, and exposure to U.S. working culture that is conferred to later generations.20
Jamie-Goodwin
Wright writes, “the US-born and educated children of immigrants should largely escape the immigrant
penalties their parents face in the US labor market.”21
But authors observe that Mexican newcomers and
their second and third generation decedents face at least stagnant or possibly “downward assimilation”
patterns and worry about the emergence of a permanent Hispanic underclass.22
In particular, Trejo et al. look to the explanatory power of education in the intergenerational
assimilation of Mexican Americans, arguing that the educational deficit likely explains low earnings of
Mexican-origin laborers.23
Unlike other immigrant groups, Trejo also observers that educational progress
largely stagnates with the children of immigrants and educational trajectories peak far earlier than other
immigrant groups. Furthermore, geographic considerations are important for the assimilation
characteristics of Hispanic immigrants. On the one hand, while observers note that strong receiving, co-
ethnic communities provide initial sites of concentrated ethnic resources for new immigrants, other
scholars point to the spatial assimilation of immigrants as a confounding factor that is detrimental to
second generation economic incorporation.24
Along these lines, long-term residence in cities or ethnic
enclaves (e.g. neighborhoods) may have unequal labor market conditions that threaten intergenerational
economic and social mobility, “proving detrimental to second generation economic incorporation.”25
Several authors define co-ethnic enclaves as an area where a particular socio-cultural group
numerically dominates and creates corresponding religious, cultural commercial and linguistic
institutions. Other authors note that living and working side by side without community bonds or shared
sentiments does not necessarily make a cluster of ethno-culturally homogenous members an ethnic
enclave.26
These detractors note that the “the emergence of formal and informal community institutions
and symbols” is key in converting a concentration of homogenous individuals into an ethnic an enclave.27
Similarly, the steady influx of migrants into the ethnic enclave provides the migrant with constant
access to a supply of cultural symbols and practices: most notably, the enclave affords the ability to speak
in a native language and serves “as a powerful indicator of who is an authentic member and who is not.”28
19
Gretchen Livingston, “Gender, Job Searching, and Employment Outcomes Among Mexican Immigrants,”
Population Research and Policy Review 25, no. 1 (2006): 43–66.
20
Fry, “Education May Boost Fortunes of Second-Generation Latino Immigrants.”
21
Jamie Goodwin-White, “Placing Progress: Contextual Inequality and Immigrant Incorporation in the United
States,” Economic Geography 84, no. 3 (2008): 4.
22
Alejandro Portes and Min Zhou, “The New Second Generation: Segmented Assimilation and Its Variants,” The
ANNALS of the American Academy of Political and Social Science 530, no. 1 (November 1, 1993): 74–96,
doi:10.1177/0002716293530001006.
23
Groger and Trejo, Falling Behind or Moving Up?.
24
G. Livinston and J. Kahn, “An American Dream Unfulfilled: The Limited Mobility of Mexican Americans,”
Social Science Quarterly 83 (2002): 1003–13.
25
Goodwin-White, “Placing Progress,” 35.
26
Schiller, Basch, and Blanc, “From Immigrant to Transmigrant.”
27
Ivan Light et al., “Beyond the Ethnic Enclave Economy,” Social Problems 41, no. 1 (1994): 65–80.
28
Tomás Roberto Jiménez, Replenished Ethnicity: Mexican Americans, Immigration, and Identity (University of
California Press, 2010), 113.

8. 7
Along these lines, an ethnic enclave has two main defining characteristics: 1) spatial clustering of co-
ethnics and 2) social representations that “provide a means to express ideas…internalize habit, gesture,
and spatial practice.”29
In particular, Schiller et al. note that migrant entrepreneurial activities in enclaves
are built upon, and foster, transnational relationships that sustain a steady influx of migrants in the
enclave: making the existence of the enclave and transnational ties co-dependent.30
Kelly discusses
asymmetrical relationships between newcomer and benefactor in the Hispanic community that serve
multiple functions such as “cultural broker”,31
preserving practices and values that assist in adaptation to
the enclave, and enables material support and group solidarity.32
Schiller writes that these organizations
“validate or build social…capital” and “preserve culture, custom, and an identity yet to be fully embedded
in an American mosaic.”33
Schiller also suggests that the enclave and social networks shape immigrant
behavior by rewarding enclave-approved habitus or script of action with capital—human, financial,
social, and cultural—that “encodes culture and propels performance.”34
The net effect of these ethnic enclave societies is that second and third generation Mexican
immigrants, who are indeed US citizens, have lower educational outcomes than their Caucasian
counterparts, or than other immigrant groups for that matter. Indeed, Trejo finds that nearly the entire
wage gap between Mexican-Americans and other native workers can be attributed to differences in levels
of human capital, such as education.35
29
K. H. Halfacree, “Locality and Social Representation: Space, Discourse and Alternative Definitions of the Rural,”
Journal of Rural Studies 9, no. 1 (January 1993): 23–37, doi:10.1016/0743-0167(93)90003-3.
30
Schiller, Basch, and Blanc, “From Immigrant to Transmigrant.”
31
Patricia Fernández-Kelly, “The Back Pocket Map: Social Class and Cultural Capital as Transferable Assets in the
Advancement of Second-Generation Immigrants,” The Annals of the American Academy of Political and Social
Science 620, no. 1 (November 2008): 116–37.
32
Akhil Gupta and James Ferguson, Culture, Power, Place: Explorations in Critical Anthropology (Duke University
Press, 1997).
33
Schiller, Basch, and Blanc, “From Immigrant to Transmigrant,” 22.
34
Ibid., 25.
35
Groger and Trejo, Falling Behind or Moving Up?.

9. 8
Policy Recommendations:
The two policy issues we address are the inflow of low skill immigrants into the US and how to
address persistent wage disparities between unauthorized immigrants, their children, and native workers.
Under our simplified model, we propose immigration policy interventions that bring about Pareto
efficiencies, as well as policies that sufficiently compensate any potential losers to immigration reform.
First, we recommend an improved immigration system that incentivizes legal immigration rather
than illegal immigration, along the lines of a “Dutch auction.”36
Specifically with respect to Mexico, our
closest developing neighbor and important trade partner, we recommend an auction system of
immigration permits. In theory, potential immigrants would be able to submit a bid for a permit to
immigrate to the US. The quantity of permits available will be determined as an average of past estimated
immigrant inflows and then set to increase at the rate of US population growth. The fixed quantity of
permits, say Q, will be priced at the bid of the Qth
bidder, price P. All immigrants that submitted bids
above price P will then pay the price P for the permit and be able to immigrate. This distribution system
creates a market where those who t value immigration to the US and believe they will have a positive
labor market outcome can pay for that right.
There are two issues that arise from this process. The first is the ethics of charging immigrants a
fee to come to the US, and the second is the use of the revenue from this system. The first question is
concerning, but while on the surface it may seem morally questionable, it is a considerable improvement
to the existing, broken “enforcement-first” immigration system.37
At the moment, undocumented
immigrants already pay to cross the border using an informal network and underground border-crossing
specialist known as a “coyote.”38
Migration Project (MMP) data shows that between 1978 and 1996, 69%
of illegal immigrants reported using a coyote to cross the border. Increased border monitoring since 2001
has also led to an increase in coyote rates from $385-$715 per person in 1996-1998 to $1180-$1680 per
person in 2002-2004. Even so, it only takes about six weeks for immigrants to recoup these costs.39
Given
this fact, many potential immigrants would possibly embrace a legal and state-sanctioned way to undergo
border transportation. Thinking more abstractly, perhaps potential immigrants might be convinced to
borrow against their future earnings in the US in order to purchase these permits. In the model above, this
method would most likely appeal to immigrants that cannot afford price P.
Total revenues from this program could then be used effectively for one of two purposes. Either,
it could be used to pay a percentage of the annual $2.2 billion expenditure on policing the US-Mexican
border that, in part, guards against serious transnational, national security concerns such as drug
trafficking and terrorism.40
However, in the interests of Pareto optimality, we suggest that this revenue be
used to compensate low skill workers for any losses associated with immigration. Though the money may
not seem significant in any given year, over the course of many years it amounts to a substantial sum.
Taking this a policy intervention a step further, revenue could then be awarded to low skill workers in a
way that subsidizes education for them and for their children. Since low skill immigration is clearly a
compliment to high skill labor, the increase in skilled labor would greatly benefit the economy and will
help preserve the global "skills leadership" of the US in spite of the influx of low skill labor.41
36
Mark Hirschey, Managerial Economics (Cengage Learning, 2008).
37
Hanson, Robertson, and Spilimbergo, Does Border Enforcement Protect U.S. Workers from Illegal Immigration?.
38
Gordon H. Hanson, Illegal Migration from Mexico to the United States, Working Paper (National Bureau of
Economic Research, April 2006), http://www.nber.org/papers/w12141.
39
Ibid.
40
Hanson, Robertson, and Spilimbergo, Does Border Enforcement Protect U.S. Workers from Illegal Immigration?.
41
J. F. Kirkegaard, US High-Skilled Immigration Policy: A Self-Inflicted Wound, 2008.

10. 9
Indeed, one interesting consequence of this new policy will be that immigrants from Mexico in
the US will be legal. It is important to consider the economic impact of this change. There are three major
impacts, all of which appear to be positive on face value. The first is that immigrant wages tend to rise.
The second is that occupational mobility is higher, decreasing the prevalence of ethnic enclaves. The third
is that there are increased incentives for educational attainment, as educational returns are low for
immigrants prior to legalization.42
These all act to counter the issues faced by second and third generation
Mexicans and serve as strong arguments in favor of legalization of new waves of immigration.
Lastly, we turn to the economic assimilation of existing undocumented immigrants and their
children. Seizing on a policy idea that already exists, we endorse a policy similar to the DREAM Act. The
DREAM (Development, Relief, and Education for Alien Minors) Act proposes that migrants under the
age of 21 would be eligible for post-secondary education benefits (e.g. instate tuition, federal grants, or
loans). Given that the United States currently guarantees public kindergarten through twelfth-grade
education to children of unauthorized migrants, observers note that suddenly “abandon[ing] those
students who may be academically qualified to pursue post-secondary education is unwise given
enormous financial investments [already] made.”43
Furthermore, the RAND corporation estimates that a
Mexican immigrant would likely increase their pretax income at age 30 on average by $13,500 per year
under the DREAM Act.44
Such findings compound the analysis that in-state tuition programs sponsoring undocumented
young adults will likely improve labor market opportunities by improving labor market skills and
employability in the U.S. economy.45
Therefore, faced with the unprecedented inflow of undocumented
immigrants and their socioeconomic barriers to education, we strongly urge that the U.S. government
improve educational opportunities for undocumented immigrant youth through in-state subsidy programs
akin to the DREAM act.
Additionally, several observers note that a limited command of English largely curtails schooling
among second and third generation Hispanics and depresses future earnings.46
Specifically, Walter
McManus studies the labor market consequences of Hispanic enclaves and how language enclaves
depress intergenerational acquisition of bi-lingualism (e.g. “English-free” zones). Hellerstein observes 2nd
and 3rd
generation Hispanics “suffer wage penalties from employment in a workplace with poor English
proficiency” largely due to limiting returns language enclaves have on Hispanic bi-lingualism. Richard
Fry et al. find strong evidence that bilingualism is rewarded by employers and markedly improves
earnings outside of enclaves.47
Therefore, we suggest that the U.S. Department of Education promote teacher-parent partnerships
with culturally and linguistically diverse families in ethnic enclaves, recognizing that much of language
acquisition occurs at home as well as in the classroom.48
In particular, parent training and information
42
Sherrie A. Kossoudji and Deborah A. Cobb-Clark, “Coming out of the Shadows: Learning about Legal Status and
Wages from the Legalized Population,” Journal of Labor Economics 20, no. 3 (2002): 598–628.
43
Jennifer Galassi, “Dare to Dream-A Review of the Development, Relief, and Education for Alien Minors (Dream)
Act,” Chicano-Latino L. Rev. 24 (2003): 79.
44
Rand, “The Economic Benefits of the DREAM Act and the Student Adjustment Act,” 1999.
45
Neeraj Kaushal, “In-State Tuition for the Undocumented: Education Effects on Mexican Young Adults,” Journal
of Policy Analysis and Management 27, no. 4 (2008): 771–92.
46
Thomas J. Espenshade and Haishan Fu, “An Analysis of English-Language Proficiency among U.S. Immigrants,”
American Sociological Review 62, no. 2 (April 1, 1997): 288–305, doi:10.2307/2657305.
47
Richard Fry and B. Lindsay Lowell, “The Wage Structure of Latino-Origin Groups across Generations,”
Industrial Relations: A Journal of Economy and Society 45, no. 2 (2006): 147–68.

11. 10
centers funded by the U.S. Department of Education in San Diego were found to improve language
proficiency and High School graduation rates by 27% among second generation Mexican immigrants.49
Therefore, we strongly suggest that similar pilot programs are promoted in other major Mexican
immigrant enclaves in Denver, Los Angeles, and Houston.
Conclusion:
Today, there are compelling economic reasons to move away from harsh boarder control
measures that perpetuate unauthorized migration and exert downward pressure on low wages. Operating
within a Pareto optimal framework, our policy interventions attempt to achieve the two goals of Pareto
efficiency: advancing outcomes for all stakeholders while not impairing welfare for any stakeholders.
Firstly, migration holds huge potential for efficiency gains through the allocation of labor towards higher
marginal value productivity, growing the economy and expanding the labor market. In terms of improving
the situation of immigrants and their children, we have recommended substantial subsidies to education,
notably higher education, and English language programs. Although this represents an initial large capital
expenditure by the federal, state, and local governments, increased earnings resulting from these programs
will also be taxed. In turn, the economic value of a new legalization program could be substantial,
amounting to tens of billions of dollars in added income, and billions of dollars in additional tax revenue.
Without educational assistance, undocumented immigrants may continue to work low-paying
jobs that yield less, or no, taxes and potentially continue to consume public benefits and social services—
contributing to the growing fiscal deficit.50
Kathleen Connelly observes, “education is one of the best
ways to alleviate the economic and social burdens that unauthorized immigrants impose…education leads
to higher paying jobs [and migrants] are more able to afford housing and health care.”51
Therefore, this
paper supports education investments that use a combination of federal and non-federal funds to support
educational attainment for second and third generation immigrants.
Finally, although the following issue is beyond the scope of this paper, it nonetheless merits
mention as a factor to consider in the immigration reform debate. Notably, there may be another large
dynamic benefit to continued immigration, given questions surrounding the ability of the US government
to support the current welfare system as the average US citizen ages. Along these lines, the sharp rise in
the number of elderly will likely put enormous pressure on resources directed towards the older ages,
such as ever-expanding Social Security, Medicare, and Medicaid budgets.52
Because of a constant supply
of young immigrants from Mexico, and in turn taxable wage-earners, the overall US population would
also be better positioned to support entitlement programs for the elderly into the future.
48
Eva K. Thorp, “Increasing Opportunities for Partnership with Culturally and Linguistically Diverse Families,”
Intervention in School and Clinic 32, no. 5 (1997): 261–69.
49
Enedina García-Vázquez et al., “Language Proficiency and Academic Success: Relationships Between
Proficiency in Two Langauges and Achievement Among Mexican American Students,” Bilingual Research Journal
21, no. 4 (October 1, 1997): 395–408, doi:10.1080/15235882.1997.10162712.
50
Michael A. Olivas, “IIRIRA, the Dream Act, and Undocumented College Student Residency,” Immigr. & Nat’lity
L. Rev. 25 (2004): 323.
51
Kathleen A. Connolly, “In Search of the American Dream: An Examination of Undocumented Students, In-Stat
Tuition, and the Dream Act,” Catholic University Law Review 55 (2006 2005): 193.
52
James R. Knickman and Emily K. Snell, “The 2030 Problem: Caring for Aging Baby Boomers,” Health Services
Research 37, no. 4 (2002): 849–84.

12. 11
Bibliography:
Anderson, Stuart. Immigration. ABC-CLIO, 2010.
Borjas, George J. The Analytics of the Wage Effect of Immigration. Working Paper. National Bureau of
Economic Research, March 2009. http://www.nber.org/papers/w14796.
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