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« Back to Results

Demand for Labor

Paper Session

Saturday, Jan. 5, 2019 8:00 AM - 10:00 AM

Atlanta Marriott Marquis, M102
Hosted By: American Economic Association
  • Chair: Daniel Hamermesh, Barnard College

How Unauthorized Workers Differ from Permanent Residents: Labor Market Effects of the Minimum Wage on Immigrants

Xuetao Huang
,
Pennsylvania State University
David Abler
,
Pennsylvania State University

Abstract

While there are thousands of studies on the labor market effects of the minimum wage, very few of them focus on its effects on immigrants, especially unauthorized immigrants. Lack of reliable data on unauthorized immigrants is a major issue. Sociologists have utilized Survey of Income and Program Participation (SIPP) data to estimate the number of unauthorized immigrants using a question in the SIPP about whether immigrants to the U.S. have obtained permanent residency. In this paper we adopt a similar methodology and assume that lower-educated immigrants without permanent residency are likely to be unauthorized, as distinguished from higher-educated immigrants without permanent residency such as F-1 students and H-1B workers. Based on preliminary analyses, we find that lower-wage permanent residents experience increases in employment when effective minimum wages increase. In contrast, immigrants without permanent residency seem to be less responsive in employment to minimum wage increases.
To explain our findings, we propose a three-sector segmented labor market model with two types of workers. In the destination country, one sector is covered by the minimum wage, while the other (illegal) sector is uncovered by the minimum wage. The two types of immigrants are permanent residents and unauthorized immigrants. We assume that covered sector can only hire permanent residents and that the minimum wage is binding. The uncovered sector can hire both permanent and unauthorized workers, with the wage being market-determined and in equilibrium lower than the minimum wage. Permanent residents who cannot find jobs in the covered sector look in the uncovered sector and can always find a job in equilibrium. The two types of immigrants make decisions to migrate to the destination country. or stay in their originating country, and therefore in equilibrium, the expected returns if they migrate are the same as the reservation wage in their originating country.

Skilled Immigration and the Market for Skilled Labor: The Role of Occupational Choices

Jie Ma
,
Colgate University

Abstract

In recent years, immigration rates have increased dramatically among the most highly skilled workers. How does this inflow affect labor market outcomes among highly skilled native-born workers? How do natives' human capital decisions react to skilled immigration? Would they have specialized in different occupations? In this paper, the proposed and estimated general equilibrium model is used to identify the wage impacts of skilled immigration in STEM fields over the last two decades, taking into consideration of occupational and human capital adjustments by natives. Moreover, I estimate the demand functions for native and immigrant workers and find that skilled immigrants and natives are imperfect substitutes in some occupations and complements in others. Individuals adjust to immigration by changing occupations and human capital. Adjustments are heterogeneous. The human capital adjustments by native workers mitigate initial effects on wages. Counterfactual exercises indicate that even large inflows of foreign skilled workers have limited impacts on domestic workers. In particular, skill rental rates for native science and engineering workers would have been approximately 2% higher if firms were not able to hire more foreigners than they did in 1994. On the other hand, had U.S. workers been constrained to remain in their original occupations, the adverse impacts of foreign labor competition would be more severe. The extent to which this occupational mobility helps to absorb the immigration shock depends not only on the substitution elasticity in the directly affected occupations, but also on the demand elasticity of native labor in the destination occupations where natives move to. The estimated model is used to evaluate two types of immigration policies: a cap on total immigrants and a selective immigration policy based on occupations. A selective immigration policy is able to improve the welfare of natives across all occupations.

State Minimum Wage Changes and Employment: Evidence from One Million Hourly Wage Workers

David Sovich
,
Washington University-St. Louis
Radhakrishnan Gopalan
,
Washington University-St. Louis
Barton Hamilton
,
Washington University-St. Louis
Ankit Kalda
,
Washington University-St. Louis

Abstract

We use detailed wage data on one million hourly wage employees from over 300 firms spread across 23 two-digit NAICS industries to estimate the effect of six state minimum wage changes on employment. We find that the effect of the minimum wage on employment is nuanced. While the overall amount of low wage employees within firms in states that increase the minimum wage declines, existing minimum wage employees are no less likely to remain employed. We find that firms are more likely to reduce hiring rather than increase turnover, reduce hours, or close locations in order to rebalance their workforce. We also document significant heterogeneity in the employment effect across industries. While firms in the non-tradable goods industries do not reduce employment or hours, firms in the tradable and other goods industries reduce employment and partially substitute lower wage employees with higher skilled labor.

The Effect of In-migration on Labor Demand from the Fall of Cow to Today

Levis Kochin
,
University of Washington
Jung Bae
,
Ohio State University

Abstract

In-migration has often been seen as causing a movement down along a constant labor demand curve. But the new residents purchase non-tradeable current goods and services, and shift the demand curve for labor to the right. In this paper, we lean upon historical episodes and expand the discussion of this “induced demand” for current non-tradeables to include local construction activity spurred on by the migrants’ arrival. We predict that in cities with highly elastic building supplies, a wave of in-migration can generate demand for a quantity of local labor that is twice as large as the initial inflow. On frontiers, the effects of in-migration on labor demand were the dominant cause of economic instability. In colonial Massachusetts, the Puritan takeover of England halted in-migration and generated a depression called “the Fall of Cow”, after its effect on cow prices.

Upskilling: Do Employers Demand Greater Skill When Workers Are Plentiful?

Alicia Sasser Modestino
,
Northeastern University
Daniel Shoag
,
Harvard University
Joshua Ballance
,
Federal Reserve Bank of Boston

Abstract

Between 2007 and 2012, there was a shift in the Beveridge Curve where the unemployment to vacancy rate ratio was significantly higher than the stable pre-recession trend. Several explanations for this shift have been suggested, including a change in employer “recruitment intensity” per vacancy. Using a proprietary dataset of 36.2 million online job postings, we measure one aspect of recruitment intensity during the Great Recession known as “upskilling” or the increase in skill requirements employers use to screen candidates when filling a new vacancy. We find that the percentage of vacancies requiring a bachelor’s degree or 4+ years of experience increased between 2007 and 2010 and then fell as labor markets recovered. We test whether these aggregate trends reflect a causal shift in recruitment in intensity in response to an increase in the supply of workers by exploiting the variation in unemployment rates across states during the Great Recession, finding that a 1 percentage point increase in the state unemployment rate is associated with a 0.6 percentage point increase in the fraction of employers requiring a Bachelor’s degree and a 0.8 percentage point increase in the fraction of employers requiring 4+ years of experience. The magnitude of the correlation suggests that the increase in the number of people looking for work during the Great Recession accounts for 18% of the total increase in education requirements and 25% of the experience requirements observed between 2007 and 2010. This finding is robust to controlling for local demand conditions and firm×job-title fixed effects as well as using a natural experiment arising from troop withdrawals as an exogenous shock to labor supply. To our knowledge, these findings provide some of the first empirical evidence of a shift in recruitment intensity whereby employer skill requirements are driven—in part—by the available supply of labor.
JEL Classifications
  • J2 - Demand and Supply of Labor