CEPII, Recherche et Expertise sur l'economie mondiale
Minimum Wages and the Labor Market Effects of Immigration

Anthony Edo
Hillel Rapoport

 Highlights :
  • This paper investigates how the prevalence of minimum wage affects the labor market impact of immigration
  • Our identification strategy uses the non-linearity created by the coexistence in the United States of state- and federal-level minimum wages
  • We find that immigration has relatively small detrimental effects on the wages and employment outcomes of competing native workers
  • However, the impact of immigration on natives' labor market outcomes is more negative in states where the effective minimum wage is relatively low
  • High minimum wages thus exert a protective effect on natives' wages and employment, making them less sensitive to competition from immigrants

 Abstract :
This paper exploits the non-linearity in the level of minimum wages across U.S. States created by the coexistence of federal and state regulations to investigate how the prevalence of minimum wages affects the labor market impact of immigration. We find that the effects of immigration on the wages and employment of native workers within a given state-skill cell are more negative in U.S. States with low minimum wages (i.e., where the federal minimum wage is binding). The results are robust to instrumenting immigration and state effective minimum wages, and to implementing a difference-in-differences approach comparing U.S. States where effective minimum wages are fully determined by the federal minimum wage over the whole period considered (2000-2013) to U.S. States where this is never the case. This paper thus underlines the important role played by minimum wages in mitigating any adverse labor market effects of low-skill immigration.

 Keywords : immigration | minimum wages | labor markets

 JEL : F22, J61
CEPII Working Paper
N°2017-12, July 2017

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