Does having a minimum wage affect immigration?

To mark Living Wage Week, Dr Corrado Giulietti, Associate Professor in Economics summarises his work in this area in this blog.

More and more developed and developing countries are introducing a minimum wage or increasing an existing minimum wage—policies that aim to guarantee minimum earnings for their working population.

While most researchers and policymakers focus on the consequences of the minimum wage for people living in the country in question, a minimum wage can also influence immigration, leading to an increase (or even a decrease) in the number of low-skilled workers migrating from abroad.

An increase in the minimum wage in immigrant destination countries influences the earnings that low-skilled migrants can expect to get if they were to migrate.

Most empirical evidence comes from the United States, where the policy underwent several changes during the past decades. A recent study suggests that minimum wages increase the expected earnings of low-educated immigrants, raising their prospective wage with little adverse employment effects.  As a consequence, there is an increase of flow of low-skilled migrants (both from abroad and from other states) towards those states where expected wages grow the most.  Contrasting evidence shows that immigrants are less likely to move into areas with higher or more frequent increases in the minimum wage.  These different findings seem to reflect different relocation decisions by immigrants who have lived in the US for several years, who are more likely to move in response to higher minimum wages, and by new immigrants, who are less likely to move within the country in response of the policy.

Thus far, the empirical evidence about the effects of the minimum wage on migration is scarce, especially outside the United States. A recent study indicates that immigration flows to the United Kingdom might have slightly increased as a consequence of the introduction of the national minimum wage in 1999. However, there is no evidence so far that subsequent increases in the minimum wage might have led to more low-skilled migrants moving to the UK.

It is important to keep in mind that institutions and labour markets in the United Kingdom are different than those in the United States, hence the two cases are not fully comparable. Furthermore, free mobility of workers within the European Union implies that migration flows might respond differently to changes in the labour markets of the destination country – the United Kingdom in this specific case. Overall, this calls for more empirical evidence on the influence of the minimum wage on migration in the United Kingdom and in other European countries such as Germany, where the minimum wage has recently been introduced.

Despite these mixed findings, the evidence does suggest that the minimum wage has an effect on immigration: the policy influences international migration flows, as well as the internal location choices of immigrants. When introducing or raising the minimum wage, policymakers should consider the potential effects of the policy on the migration choices of individuals living abroad.  Furthermore, minimum wage and immigration policies should be coordinated if central and local governments wish to control the effects of the minimum wage beyond local borders.

Summary: Pros and cons

+ An increase in the minimum wage raises the wage that immigrants can attain in the destination country.

+ There is evidence that minimum wage policies do not negatively affect the employment of recently arrived immigrants.

+ Empirical findings suggest that immigrants react to the minimum wage by relocating within the country, thereby relaxing downward pressure on the employment of native-born workers.

+ Some empirical evidence implies that the minimum wage does not affect the inflow of undocumented immigrants.

– Findings from some studies suggest that a minimum wage increases the supply of low-skilled immigrants, possibly tightening job competition for low-skilled natives and earlier immigrants.

– An increase in the minimum wage induces migrants who have been in the country longer to relocate, potentially disrupting their assimilation process.

– A dearth of empirical evidence makes it difficult to predict the response of immigration to changes in the minimum wage, especially outside the US.

– Findings of an immigration response to changes in the minimum wage are sensitive to the methodology applied.

References:

• Boffy-Ramirez, E. “Minimum wages, earnings, and migration.” IZA Journal of Migration 2:17(2013).
• Cadena, B. “Recent immigrants as labor market arbitrageurs: Evidence from the minimum wage.” Journal of Urban Economics 80 (2014): 1–12.
• Cicagna, C., and G. Sulis. “On the potential interaction between labour market institutions and immigration policies.” International Journal of Manpower, 36(4):441-468 (2015)
• Giulietti, C. “Is the minimum wage a pull factor for immigrants?” Industrial and Labor Relations Review 67:3 (2014): 649–674.
• Giulietti C, “Do minimum wages induce immigration?”, IZA World of Labor http://wol.iza.org/articles/do-minimum-wages-induce-immigration.pdf
• Orrenius, P. M., and M. Zavodny. “The effect of minimum wages on immigrants’ employment and earnings.” Industrial and Labor Relations Review 61:4 (2008): 544–563.

Dr Corrado Giulietti, Associate Professor in Economics at the University of Southampton, and an Associate Researcher within the ESRC Centre for Population Change.  He specialises in labour and development economics, with a particular focus on migration.