Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis

Abstract

How does the US labor market absorb low-skilled immigration? In the short run, high-immigration locations see their low-skilled labor force increase, native low-skilled wages decrease, and the relative price of rentals increase. Internal relocation dissipates this shock spatially. In the long run, the only lasting consequences are (a) worse labor market conditions for low-skilled natives who entered the labor force in high-immigration years, and (b) lower housing prices in high-immigrant locations, when immigrant workers disproportionately enter the construction sector and lower construction costs. I use a quantitative dynamic spatial equilibrium many-region model to obtain the policy-relevant counterfactuals.