Using matched employer-employee data from the state of Georgia, this paper investigates how differences in wage responsiveness contribute to the determination of observed wage differentials between documented and undocumented workers. Facing fewer employment opportunities, undocumented workers are found to be about 22 percent less sensitive than documented workers to employers' wage adjustments. In addition, this difference in wage responsiveness accounts for 27 percent of the observed within-firm wage differential between documented and undocumented workers. Implications of the results for recent state immigration legislation are discussed.
JEL classification: J42, J61, J2
Key words: labor demand, monopsony, illegal immigration, undocumented workers
J. David Brown, Patricia Cortes, Curtis Florence, Sarah Beth Gehl, Gordon Hanson, Barry Hirsch, Alan Manning, Federico Mandelman, Marie Mora, Anita Alves Pena, Pia Orrenius, Eric Smith, Todd Sorensen, Kevin Thom, Dan Waggoner, Madeline Zavodny, and participants in seminars at University of Georgia, University of Kentucky, Vanderbilt University, and Georgia State University provided helpful comments. The authors thank Nicole Baerg, Gustavo Canavire, M. Laurel Graefe, Gustavo Uceda, and Eric Wang for research assistance. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
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