The US government is busy deporting illegal immigrants who live in the US. NBC -News Reports That the current Run rate is around 15,000 deportations per month and that around 60,000 people are held in detention centers somewhere. These are small figures compared to the estimated 8 million illegal immigrants who live in the US. But what are the economic consequences of these deportations?
To be clear, I am completely in favor of preventing illegal immigration. But even Ronald Reagan gave an amnesty to illegal immigrants For a long time in the US living on humanitarian but usually on economic grounds. This is not the place to discuss politics, but it is the place to discuss the economic impact of these actions. A New study from the University of Texas Show how great this economic impact in the US could become if the current administration considerably increases its deportation percentage.
Last year, one Study by the Peterson Institute for International Economics used a worldwide macro model to estimate the impact of the deportation of 1.3 million illegal immigrants from the US. That is about one eighth of the current illegal immigrant population in the US, and they concluded that it would increase inflation in the US by around 0.5%, usually driven by food prices. Note that this number is much higher than what the current administration will probably achieve. The current Run-rate would lead to the deportation of around 800,000 illegal immigrants by the end of Trump’s second term of office.
The new study has the advantage that it is much grain. They look at 44 sectors and every state of the US to assess the size of the illegal immigrant population and the impact of a reduction in this population by half (ie about 4 million illegal immigrants). Ironically, it would reduce the wages of indigenous employees in every state of the US in real terms. The national average decrease in real wages is small with 0.3%. If we reduce that proportionally to around 800,000 deported illegal immigrants, this would imply a fall in real wages of 0.06% at the end of the current administration.
Changes in real wages in different regions
Source: Cravino et al. (2025)
It is a small effect, but it is counter -intuitive in two ways. Firstly, fewer employees means that the real wages have on average the tendency to fall, do not rise. Secondly, as the charts show, wages for immigrants tend to go up, especially for the remaining illegal immigrants in the US, who see their real wages rising by 12.2% when half of the illegal immigrants are deported (or 2.4% as 800.0000 are deported).
These two counter -intuitive results are powered by something that classically trained economists do not understand, but modern economists do understand: illegal immigrants, legal immigrants and mother tongue workers are not the same. Classical economy assumes that an employee is an employee, an employee. An employer will simply choose the cheapest employee from a pool of qualified people. If you reduce the supply of work, but keep demand constant, the labor prize (ie wages) increases.
What modern economists understand is that even employees with the same qualifications do not necessarily compete with each other. They compete on individual labor markets, one for illegal immigrants and one for natives. Why? Because the lack of legal status means that illegal immigrants can and will be assumed below the minimum wage and without the need to pay benefits. Deporting illegal immigrants simply means that there is a major decrease in employers who are willing to hire illegal immigrants who will not be filled by residents or legal immigrants, as long as the wages are increasing for the remaining illegal immigrants smaller than the previous pay gap to naturally. And guess something, if you can pay less than minimum wage and no benefits, the pay gap between illegal immigrants and natives is indeed very large.
This explains why the illegal immigrants who remain in the US are the big winners of the deportations. But why would the indigenous population see its real wages fall? The answer is in the word ‘real’. This is what happens to inflation in the 44 sectors that the study looks at. Industries that are more dependent on illegal immigrant work see higher inflation as wage costs rise.
Changes in inflation between sectors
Source: Cravino et al. (2025)
In the meantime, the lack of employment provision that also shrinks the output means, and that is why GDP growth is decreasing, which in turn exerts downward pressure on wages.
Changes in economic growth between sectors
Source: Cravino et al. (2025)
Certainly, the effect is small when it is reduced to the current deportation percentages, but what this study shows is that the discussion in the media about the economic benefits or costs of illegal immigrants is often misleading. It is usually a reflection of simple models such as the classic assumption that an employee is an employee, an employee, and if you remove illegal immigrants, wages must go up.
#costs #removing #illegal #immigrants