Panel Paper: Minimum Wages and Low-Skilled Immigrants: New Evidence on Earnings, Employment and Poverty

Saturday, November 10, 2018
8216 - Lobby Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Joseph Sabia, University of New Hampshire and Brandyn Churchill, Vanderbilt University

Over 42 million immigrants live in the United States, with approximately one million new immigrants arriving each year. By 2023, one out of every seven US residents is projected to be foreign-born, a number that is expected to increase to one out of every five by 2060. While the post-Great Recession recovery and increased border enforcement have led to an absolute reduction in the number of unauthorized persons in the US, estimates place the size of this population from 11 million to 20 million.

There is substantial skill heterogeneity among immigrants to the US (Borjas 2015; Ehrlich and Kim 2015), with a sizable portion of the population drawn from the tails of the skill distribution. However, the median income of full-time employed foreign-born workers is 20 percent less than that of their native-born counterparts, a differential driven by Hispanics, who account for nearly half (49 percent) of all foreign-born workers. The concentration of immigrants in low-wage jobs is particularly acute among likely unauthorized migrants, whose representation in lower-skill sectors such as service and construction is larger than that of natives or authorized immigrants (Passel and Cohn 2015).

The Trump Administration has ushered in a fierce public debate about the future of US immigration policy. As part of that debate, some have called for minimum wage increases as a means of improving the economic well-being of immigrants (Fiscal Policies Institute 2016). Relatively little is known about the impact of minimum wages on immigrants (see Orrenius and Zavodny for an exception). And next to nothing is known about how immigration reform and the changing composition of migrants have altered the effectiveness of the minimum wage.

We investigate the impact of minimum wage increases on low-skilled immigrants. Our results provide evidence that minimum wage increases are associated with an increase in earnings but also a decline in the employment of low-skilled immigrants of Hispanic ethnicity and Mexican origin during the 1994 to 2016 period. We estimate an employment elasticity with respect to the minimum wage of approximately -0.1, a finding which is robust to controls for policy leads, state-specific time trends, and endogenous immigrant mobility.

However, our results also suggest that minimum wage increases have had little effect on low-skilled immigrants’ economic well-being after 2005. This may be explained by the Great Recession changing the composition of low-skilled immigrants in the US, as well as the enactment of more restrictive state immigration policies. For example, we find some evidence that minimum wage-induced adverse employment effects are smaller when E-Verify, a policy designed to directly affect employment opportunities for immigrants, is enacted. This result is consistent with E-Verify inducing more informal work, where minimum wages have smaller effects. Moreover, during economic recessions, the adverse employment effects of minimum wages are also muted, consistent with an increase in informal work or outmigration of the least skilled. Finally, our findings provide little support for the claim that minimum wage increases alleviate poverty or increase household income among low-skilled immigrants, in part due to adverse employment effects.