A few excerpts from a Merrill Lynch research note: The undocumented economy
Let’s consider three scenarios:
1.Improved border security and more aggressive deportations that lower the number of undocumented workers by 200,000 per year. This could be achieved by increasing annual deportations from about 400,000 to 500,000 and stopping 100,000 more people per year at the border.
2. Cut the number of undocumented workers in half over a four year period through tougher enforcement.
3. Effectively eliminate all undocumented workers over a four year period.
…
In the first scenario the economic impacts are likely to be very small. … The story is very different under the second and third scenarios. Undocumented immigrants tend to specialize in certain kinds of jobs. Hence cutting the labor force in these areas could hurt the productivity of complementary workers causing indirect loses beyond the direct labor force reduction. … With full deportation an outright recession seems plausible, as output would be disrupted and as the Fed may be unwilling to act because a labor shortage would mean a surge in wage and price inflation.
…
Undocumented immigrants are a relatively small part of the overall labor force [and] our baseline is relatively benign, but we see significant downside risks to that baseline.
emphasis added