Immigration Reform and the Earnings of Latino Workers: Do Employer Sanctions Cause Discrimination?

This paper investigates whether employer sanctions for hiring undocumented workers introduced by the 1986 Immigration Reform and Control Act (IRCA) adversely affected the hourly earnings of Latino workers in the southwestern United States. We exploit the staggering of the sanctions and employee verification requirements across sectors to estimate this effect. In particular, IRCA’s employer-sanctions provisions were not extended to agricultural employers until 2 years after their imposition on nonagricultural employers. Hence, Latino agricultural workers provide a control group against which to compare changes in the wages of Latinos in nonagricultural employment. We find substantial pre-post IRCA declines in the hourly earnings of Latino nonagricultural workers relative to Latinos in agriculture. This pattern, however, is considerably stronger for Latino men than Latina women. We do not observe similar intersectoral shifts in relative wages among non-Latino white workers. In fact, the relative wage changes for non-Latino white workers are of the opposite sign. Finally, the pre-post IRCA relative decline in Latino nonagricultural wages reverses the pre-IRCA trend in which the relative earnings of Latino nonagricultural workers had been increasing.