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157 Hosler Building
While there are thousands of studies on the labor market effects of the minimum wage, very few of them focus on its effects on immigrants, especially unauthorized immigrants. To fill this gap, this paper models and tests the effects of the minimum wage on the employment and wage of low-wage low-educated immigrants, depending on their immigration status. Theoretically, we develop a three-sector segmented labor market model with two types of workers. Covered sector and uncovered sector in the destination country: one pays at or slightly above the minimum wage, while the other pays below the minimum wage. One sector in the originating country is the reservation wage sector, which is a fallback state when immigrants do not migrate. The two types of immigrants are permanent residents and unauthorized immigrants who make decisions to migrate or not, and therefore in equilibrium, the expected returns if they migrate to destination are the same as the reservation wage in their originating country. Empirically, we make use of a nationally representative database containing information on the permanent residency status of immigrants. Both the theoretical model and empirical tests show that low-educated low-wage unauthorized workers experience decreases in employment when effective minimum wages increase only slightly, but their employment increases when minimum wage increases significantly.