Optimal Vigilance Level and Hiring Illegal Immigrants

Abstract

This paper assumes a Ricardian Economy and analyzes migration of illegal unskilled workers in a model of Cournot Duopoly where firms are producing homogenous and non-traded goods, and hiring illegal immigrants. The focus is on the behaviours of firms and the implications for the output, prices and employment of domestic workers in that industry. A two-stage simultaneous move game is set up: In Stage 1, for a given technology and vigilance level, each individual firm will decide whether to hire illegal immigrants. In Stage 2, each firm will choose the Cournot output level. Using this structure, we provide additional insights as to why firms hire illegal workers and what motivates these firms in their hiring practices. Furthermore the presence of illegal immigrants may create more employment for domestic workers and a social planner can be strategic in choosing optimal level of vigilance as we have shown that multiple solutions for optimal vigilance are possible and also Pareto ranked.