Working Paper: CEPR ID: DP13394
Authors: Joan Monras
Abstract: How does the US labor market absorb low-skilled immigration? I address this question using the 1995 Mexican Peso Crisis, an exogenous push factor that raised Mexican migration to the US. In the short run, high-immigration locations see their low-skilled labor force increase and native low-skilled wages decrease, with an implied inverse local labor demand elasticity of at least -.7. Mexican immigration also leads to an increase in the relative price of rentals. Internal relocation dissipates this shock spatially. In the long run, the only lasting consequences are a) lower wages and employment rates for low-skilled natives who entered the labor force in high-immigration years, and b) lower housing prices in high-immigrant locations, since Mexican immigrant workers disproportionately enter the construction sector and lower construction costs. I use a quantitative dynamic spatial equilibrium many-region model to obtain the counterfactual local wage evolution absent the immigration shock, to analyze the role of unilateral state level immigrant restrictive laws, and to study the role of housing markets.
Keywords: immigration; wage dynamics; Mexican peso crisis
JEL Codes: F22; J20; J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 1995 Mexican peso crisis (F31) | increase in low-skilled Mexican immigration (F66) |
| increase in low-skilled Mexican immigration (F66) | decrease in native low-skilled wages in high-immigration locations (F66) |
| increase in low-skilled Mexican immigration (F66) | increase in demand for rental housing (R21) |
| increase in demand for rental housing (R21) | widening rental price gap (R21) |
| increase in low-skilled Mexican immigration (F66) | lower wages and employment rates for low-skilled natives (F66) |
| increase in low-skilled Mexican immigration (F66) | lower housing prices in high-immigrant locations (J69) |
| internal migration (F22) | wage adjustments across regions over time (J39) |
| increase in low-skilled Mexican immigration (F66) | temporary impacts on wages and employment rates (F66) |