Labor Protectionism: Minimum Wage and the Labor Market Effects of Immigration

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A new working paper provides some interesting results about the interplay between immigration and minimum wage laws:

Our first empirical strategy exploits the non-linearity of the minimum wage across U.S. States to investigate the role played by the minimum wage in shaping the impact of immigration on the wages and employment of competing native workers. We find that on average, immigration has relatively small detrimental effects on the wages and employment outcomes of competing native workers. The main contribution of this study is not to provide yet another estimate of the wage and employment responses to immigration but, rather, to investigate the role of minimum wages in determining such responses. Indeed, we show that the labor market effects of immigration are heterogeneous across U.S. States characterized by different levels of minimum wage. In particular, we find that the impact of immigration on natives’ labor market outcomes is more negative in states where the effective minimum wage is relatively low. In contrast, sufficiently high minimum wages tend to protect native workers from any adverse wage or unemployment effects of immigration.

Our second empirical methodology uses a difference-in-differences approach. We use cross-state differences in the impact of federal minimum wage adjustments on state effective minimum wages. Over our period of interest, the successive rises in the federal minimum wage have fully affected the states where the effective minimum wage is equal to the federal one (the treatment group), with no impact in high minimum wage states (the control group). Thus, we can estimate the difference between the labor market impact of immigration before and after the federal policy changes between the treatment group and the control group. Our estimates indicate that the detrimental impact of immigration on natives’ wages and employment have been mitigated thanks to the federal minimum wage increases that occurred in three installements between 2007 and 2010.

Taken together, our results indicate that high minimum wages tend to protect employed native workers against competition from immigrants. This may come at the price, obviously, of rendering access to employment more difficult for outsiders such as the unemployed natives and new immigrants, a question we cannot investigate given the limits of our data (pg. 51-52).

Interesting, but not surprising. Case in point, consider my summary of Thomas Leonard’s Illiberal Reformers:

The book meticulously demonstrates that the progressive impulse toward inflating the administrative state was driven largely by self-promotion (i.e, the professionalization of economists), racist ideologies (i.e., the fear of race suicide), and an unwavering faith in science. Not only should the “undesirables” of the gene pool be sterilized, but they should be crowded out of the labor force as well. Those considered “unfit” for the labor market included blacks, immigrants, and women. In order to artificially raise the cost of employing the “unfit,” progressives sought to implement minimum wage (often argued to be a “tariff” on immigrant labor), maximum hours, and working standard legislation.

A “tariff” on immigrant labor indeed.