Abstract
We study the impact of recessions on the real wages of undocumented immigrants in the US using data from the Mexican Migration Project. Empirical evidence shows that undocumented immigrants experience larger wage drops during recessions than legal immigrants, suggesting that the frequent renegotiation of contracts leads to greater wage flexibility. Because migration decisions also adjust to these wage changes, the observed equilibrium wages are capturing both lowered aggregate productivity and a smaller supply of migrant workers. To separate these effects, we analyze an equilibrium migration model where native wages are rigid while immigrant wages are flexible. In a counterfactual experiment with a fixed supply of immigrant workers, we see a stronger relationship between aggregate negative productivity shocks and immigrant wages. We also find that the flexibility of immigrant wages could reduce the volatility of high-skilled native employment over the business cycles, but magnifies the volatility of low-skilled native employment.
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