Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis

103 Pages Posted: 17 Dec 2018

See all articles by Joan Monras

Joan Monras

Centre for Monetary and Financial Studies (CEMFI)

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Date Written: December 2018

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.

Suggested Citation

Monras, Joan, Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis (December 2018). CEPR Discussion Paper No. DP13394, Available at SSRN: https://ssrn.com/abstract=3302644

Joan Monras (Contact Author)

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain

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