Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis

Authors: Joan Monràs

Journal of Political Economy, Vol. 128, No 8, 3017-3089, August, 2020

How does the US labor market absorb low-skilled immigration? I address this question using the 1995Mexican 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 toan increase in the relative price of rentals. Internal relocation dissipates this shock spatially. In thelong run, the only lasting consequences are a) lower wages and employment rates for low-skilled nativeswho entered the labor force in high-immigration years, and b) lower housing prices in high-immigrantlocations, since Mexican immigrant workers disproportionately enter the construction sector and lowerconstruction costs. I use a quantitative dynamic spatial equilibrium many-region model to obtain thecounterfactual local wage evolution absent the immigration shock, to study the role of local technologyadoption in generating wage dynamics, to analyze the role of unilateral state level immigrant restrictivelaws, and to study the role of housing markets