Tightened Immigration Policies and the Self‐Employment Dynamics of Mexican Immigrants

As the U.S. government has intensified its crackdown on illegal immigration in recent years, an important question to ask is how undocumented immigrants react to the stricter enforcement of immigration laws. This paper seeks to answer whether they increasingly choose self‐employment in an effort to avoid apprehension and subsequent deportation. To guard against endogeneity bias that might stem from increased enforcement in reaction to illegal immigration, the empirical analysis makes use of the September 11 terror attacks (9/11), which inadvertently triggered stricter immigration enforcement nationwide, as a natural experiment. Using a difference‐in‐differences approach and data from the Current Population Survey between 1996 and 2006, this paper examines the changes in the self‐employment choices of male and non‐citizen Mexican immigrants (a proxy for undocumented immigrants) compared to less‐educated Whites (the control group). The findings indicate that male and non‐citizen Mexican immigrants are substantially more likely (40 percent) to enter into self‐employment than less‐educated Whites after 9/11. The analysis further suggests that this finding is not driven by the 2001 recession that coincided with the terror attacks. The increased entries are mainly observed in the group that is most likely to be in the United States illegally and in those who face strong economic incentives. In addition, increased entries are not driven by increased unemployment among Mexican immigrants after the 9/11 event, but, rather, they reflect a change in the behavior of the unemployed Mexican immigrants, perhaps due to changes in perceived risks of detection and deportation.