Documenting the Undocumented: The Impact of Employment Verification Mandates on Government Borrowing Costs

Abstract

We examine how undocumented workers affect municipal bond markets. Exploiting the staggered adoption of E-Verify laws, which restrict hiring unauthorized workers, we find that E-Verify adoption significantly reduces municipal bond spreads—especially in states with larger undocumented populations, stricter enforcement, and greater anti-immigrant sentiment. This effect is weaker in states more economically reliant on undocumented labor. When investigating the potential channels of this effect, we find while E-Verify laws lower tax revenues, they also reduce spending on education and social welfare, leading to smaller fiscal deficits. Our findings highlight the fiscal and financial market consequences of immigration policy.

Keywords: Undocumented Immigrants, E-Verify, Municipal Bonds, Labor Supply, Debt Market