According to economic theory, a minimum wage reduces the number of low-wage jobs and increases the number of available workers, allowing greater hiring selectivity. More competition for a smaller number of low-wage jobs will disadvantage immigrants if employers perceive them as less skilled than native-born workers—and vice versa. Studies indicate that a higher minimum wage does not hurt immigrants, but there is no consensus on whether immigrants benefit at the expense of natives. Studies also reach disparate conclusions on whether higher minimum wages attract or repel immigrants.
What is the role of a minimum wage?
The main motivation for a minimum wage is to ensure that low-wage, low-skilled workers earn an adequate income and are not exploited by employers. However, a minimum wage may lead to adverse consequences that ultimately make some low-skilled workers worse off. Most importantly, a minimum wage may reduce the number of workers that employers hire and cause employers to shift away from the least-skilled workers toward more-skilled workers.
The effect of a minimum wage may be different for immigrants than for native-born workers if the two groups do not have the same skill distribution. The effect also may differ if minimum wage coverage or compliance varies between immigrants and natives. Unauthorized or undocumented immigrants, in particular, may be paid less than the minimum wage. As immigrants’ share of the labor force grows in many countries, it is important to understand whether a minimum wage has the same effect on immigrants as on natives. If a higher minimum wage benefits immigrants at the expense of natives or attracts more immigrants, policymakers may want to take such effects into account before raising the minimum wage.