Working Paper: CEPR ID: DP10074
Authors: Slobodan Djajic; Alice Mesnard
Abstract: Guest-worker programs have been providing rapidly growing economies with millions of temporary foreign workers over the last couple of decades. With the duration of stay strictly limited by program rules in most of the host countries and wages paid to guest workers often set at sub-market levels, many of the migrants choose to overstay and seek employment in the underground economy. This paper develops a general-equilibrium model that relates the flow of guest workers transiting to the underground economy to the rules of the program, enforcement measures of the host country and market conditions facing migrants at home and abroad.
Keywords: temporary migration; underground economy; undocumented workers
JEL Codes: F22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in the flow of guest workers (F22) | lower underground economy wage (J46) |
| increase in the flow of guest workers (F22) | ambiguous effect on stock of undocumented workers (K37) |
| extending the duration of stay for guest workers (J61) | decrease in stock of undocumented labor (K37) |
| enforcement measures (K40) | decrease in stock of undocumented labor (K37) |
| enforcement measures (K40) | decrease in underground economy wage (E26) |
| host country policies (O24) | affect propensity of workers to overstay and work illegally (J63) |
| host country policies (O24) | link to economic conditions in host and source countries (F29) |