Undocumented Worker Employment and Firm Survival

45 Pages Posted: 19 Jan 2009

See all articles by J. David Brown

J. David Brown

US Census Bureau Center for Economic Studies; IZA Institute of Labor Economics

Julie L. Hotchkiss

Federal Reserve Bank of Atlanta; Georgia State University - Department of Economics

Myriam Quispe-Agnoli

Federal Reserve Bank of Atlanta

Abstract

Do firms employing undocumented workers have a competitive advantage? Using administrative data from the state of Georgia, this paper investigates the incidence of undocumented worker employment across firms and how it affects firm survival. Firms are found to engage in herding behavior, being more likely to employ undocumented workers if competitors do. Rivals' undocumented employment harms firms' ability to survive, while firms' own undocumented employment strongly enhances their survival prospects. This suggests that firms enjoy cost savings from employing lower-paid undocumented workers at wages less than their marginal revenue product. The herding behavior and competitive effects are found to be much weaker in geographically broad product markets, where firms have the option to shift labor-intensive production out of state or abroad.

Keywords: undocumented workers, firm dynamics, monopsony, immigration policy

JEL Classification: L1, J23, J61

Suggested Citation

Brown, J. David and Hotchkiss, Julie L. and Quispe-Agnoli, Myriam, Undocumented Worker Employment and Firm Survival. IZA Discussion Paper No. 3936. Available at SSRN: https://ssrn.com/abstract=1329574

J. David Brown (Contact Author)

US Census Bureau Center for Economic Studies ( email )

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IZA Institute of Labor Economics

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Julie L. Hotchkiss

Federal Reserve Bank of Atlanta ( email )

Research Department
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Georgia State University - Department of Economics ( email )

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Myriam Quispe-Agnoli

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404-498-8930 (Phone)
404-498-8956 (Fax)

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