Thursday, February 10, 2011

Are minimum wages attracting immigrants?

Immigrants typically compete on the labor market with the low-skilled domestic labor force. Along with global competition through offshoring, this is probably the main reason why real wages have stagnated or even decreased over the last decades for the least educated. One way to counteract this development is to raise minimum wages, which may, however, have the adverse effect of encouraging even more outsourcing to abroad. There may be more reasons for concern.

Corrado Giuletti shows that increasing minimum wages also attracts more immigrants, which puts even more pressure on the least educated workforce. This is not obvious, as the higher wages could also imply lower job prospects, and thus be discouraging for immigrants. To come to this conclusion, Giuletti uses the Current Population Survey and analyzes the responses to the minimum wage increases in 1996-97 in the United States, which differed substantially by state, and lead to different expectations about future wage increases. Those that had the highest increases saw an immigration inflow four times larger than those with the lowest increases, if one focuses on the low-skilled. No impact is seen for the high-skilled. What the implications are for the domestic low-skilled workers remains to be seen, however.

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