Immigrants' Labor Supply and Exchange Rate Volatility

Abstract

Are an immigrant'’s decisions affected in real time by her home country'’s economy? I examine this question by exploiting exchange rate variations as exogenous price shocks to immigrant's ’budget constraints. I …find that in response to a 10 percent dollar appreciation, an immigrant decreases her earnings by 0:92 percent, mainly by reducing hours worked. The exchange rate effect is greater for recent immigrants, married immigrants with absent spouses, Mexicans close to the border, and immigrants from countries with higher remittance fl‡ows. A neo-classical interpretation of these findings suggests that the income effect exceeds the cross-substitution effect. Remittance targets offer an alternative explanation.