These questions are central to ongoing policy and political debates across many countries. They are particularly relevant in Spain, where the current government is implementing a large-scale regularization.

To better understand these issues, it is useful to look at past experiences. Spain has prior experience with large-scale regularisations. The most relevant precedent is the 2005 reform, when nearly 600,000 immigrants obtained residence and work permits following an unexpected political shift. In the paper “Understanding the Effects of Granting Work Permits to Undocumented Immigrants,” our researcher Javier Vázquez-Grenno, together with Joan Monras (Universitat Pompeu Fabra) and Ferran Elias (Universitat de Girona), analyses this reform.

The authors first examine whether the policy generated so-called “magnet effects.” By comparing trends between EU and non-EU immigrants, they find no evidence that the reform increased immigration inflows. Instead, the policy primarily altered immigrants’ access to the formal labour market, rather than the overall number of workers.

The analysis shows that granting work permits significantly expanded labour market opportunities for previously irregular immigrants. Many moved out of highly informal sectors into better-paying and more stable jobs in areas such as retail, hospitality, and other services, reflecting a broader transition from informal to formal employment.

A central finding of the study is its substantial fiscal impact. The authors estimate that payroll tax revenues increased by at least €4,000 per newly regularised worker per year. This suggests that formalising employment can generate sizeable public revenues, even when migrants already have access to public services.

The paper also documents broader labour market adjustments. Because that regularisation was conditional on holding a job contract, many immigrants moved from informal to formal employment, gaining access to social protection and improving their long-term prospects. This transition enhanced labour mobility, improved matching between workers and firms, and reduced labour market segmentation. However, not all workers remained in formal employment over time, and some returned to informality. At the same time, employment among low-skilled native and immigrant workers declined in the informal sector, partly due to stricter enforcement and rising costs of informal work.

Wage effects further highlight the complexity of the reform. Low-skilled native workers in the formal sector experienced wage increases, suggesting a reduction in employers’ market power. At the same time, employment and wages among high-skilled workers also rose, consistent with firms adjusting labour demand towards more skilled profiles.

Overall, the findings show that regularisation policies can reshape labour markets without triggering additional immigration. By expanding opportunities for undocumented workers and encouraging a shift towards formal employment, such reforms can increase tax revenues, improve job quality, and alter the distribution of employment.

The study contributes to a better understanding of how immigration policies affect both migrants and host economies. It also highlights the importance of accounting for labour market structures and informality when designing policies aimed at integrating irregular workers into the formal economy.

References

Elias, F.; J. Monras and J. Vázquez-Grenno (2025) “Understanding the Effects of Granting Work Permits to Undocumented Immigrants“,  Journal of Labor Economics, Vol. 43,3, pags. 763-802.

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