Monopsony, minimum wages and migration

Abstract

We show in a theoretical monopsony model that in response to a small increase in migration compliance with the minimum wage will increase if the share of minimum wage workers employed in firms that are constrained by the labour supply curve is large enough. If minimum wage firms are constrained by the labour demand curve an increase in migration will leave employment unchanged and employment in non-compliant firms will rise. Using data from Thailand we provide evidence that increases in inward net migration are associated with a proportionately greater increase in workers employed at the minimum wage relative to non-compliance.