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Friday, May 23, 2008

"The Effect of Minimum Wages on Immigrants’ Employment and Earnings"

Here's more on the effects of the minimum wage:

The Effect of Minimum Wages on Immigrants’ Employment and Earnings, by Pia M. Orrenius and Madeline Zavodny, FRB Dallas: Abstract This study examines how minimum wage laws affect the employment and earnings of low-skilled immigrants and natives in the U.S. Minimum wage increases might have larger effects among low-skilled immigrants than among natives because, on average, immigrants earn less than natives due to lower levels of education, limited English skills, and less social capital. Results based on data from the Current Population Survey for the years 1994-2005 do not indicate that minimum wages have adverse employment effects among adult immigrants or natives who did not complete high school. However, low-skilled immigrants may have been discouraged from settling in states that set wage floors substantially above the federal minimum.

...Conclusion The standard model of competitive labor markets predicts that minimum wages raise earnings and reduce employment probabilities for workers who are at the bottom of the wage distribution. Along with teens and young adults, the foreign-born account for a large share of low-wage workers in the U.S., and the size of the foreign-born workforce has been rising in recent years. Immigrant workers may be particularly affected by minimum wage increases given their relatively low levels of human capital, such as less formal education, limited English proficiency, and lack of institutional knowledge.

The results of our analyses of state-level data indicate that higher minimum wages boosted average hourly earnings among adult immigrants who did not have a high school diploma or equivalent education. However, we do not find evidence of adverse employment or hours effects among this group. We do find evidence of a decline in work among teens, with a difference by gender in whether employment or hours changed in response to higher minimum wages.

Our failure to find an adverse employment effect among low-skilled adult immigrants despite a positive wage effect could result from employers substituting those workers for teens when the minimum wage increases. In addition, immigrants’ locational choices could respond to changes in minimum wages. We find some evidence that this may occur, as the educational composition of immigrants within states and the distribution of low-skilled immigrants across states are related to minimum wage levels.

The period we examine, 1994-2005, marks an era when immigrants began settling in large numbers in new parts of the U.S. in addition to going to traditional gateways like California, New York, and Texas. As the U.S. in the 1990s experienced the largest inflow of foreign-born people ever in its history, North Carolina and Georgia were the states that experienced the greatest percentage gains in foreign-born population. Notably, these two states did not increase their minimum wage beyond the federal level during that period. If firms that hire low-wage immigrants increased employment more in states with lower effective minimum wages, immigrants likely responded by moving to those states. The effect of minimum wages on locational choices among firms that hire immigrants versus natives is a promising subject for future research.

The large increase in the federal minimum wage that is set to occur in 2008 and 2009 will provide an opportunity for economists to examine the effects of a sizable increase in minimum wages across most of the country. The two-step increase in the federal minimum wage to $7.25 per hour from $5.85 exceeds the state minimum wages as of January 2007 in all states except California, Connecticut, Hawaii, Massachusetts, Oregon, Rhode Island, Vermont, and Washington. By creating a relatively high national wage floor, the proposed increase would reduce firms’ opportunity to move to areas with low state minimum wages or expand operations in those areas, possibly leading to larger disemployment effects among immigrants than those found in this study.

    Posted by on Friday, May 23, 2008 at 04:05 PM in Economics, Immigration, Unemployment | Permalink  TrackBack (0)  Comments (21)


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