Do immigrants working illegally reduce the natives' legal employment? Evidence from Italy

The paper uses estimates, provided by the Central Statistical Office, of st andard units of labour to examine how immigrants working (illegally) in the shadow economy affect the employment of (legal) labour in the official eco nomy. The results of our cross sector-time series analysis of the demand fo r legal labour in the Italian economy between 1980 acid 1995 show that the increase of illegal units of labour produces a reduction in the use of lega l labour, albeit a very limited one. An analysis by sectors shows that the competitive effect of illegal foreign workers is not homogeneous and is str ongest in the agricultural sector, while complementarity between the two ca tegories of labour is evident in the non-tradable services sector. Furtherm ore, when the effects of illegal foreign and illegal native workers are com pared, the former is smaller than the latter one, with illegal foreigners w orkers just reinforcing the impact of the illegal nationals on the labour m arket. JEL classification: J61, F22.