Employer sanctions on hiring illegal labor: An experimental analysis of firm compliance

Abstract

The employer sanctions provision of the 1986 Immigration Reform and Control Act penalizes employers who knowingly hire unauthorized workers. Under IRCA, employers are subject to civil and/or criminal penalties; however, given the widespread availability of counterfeit documentation, in some cases it becomes difficult to discern the employment eligibility status of some workers. Using experimental methods, this study provides some evidence that marginal increases in employer compliance rates are significantly higher when employers have perfect information on the employment eligibility status of its potential workers than when they do not. The experimental results suggest that increases in government spending for employer sanctions enforcement may be more effective if the informational asymmetry faced by employers is solved first. A possible solution to this problem may lie in the adoption of tamper-proof documentation such as a national identification card.