The Labor Market Value to Legal Status

We present new estimates of the effect that obtaining legal immigration status has upon the wages of undocumented workers. In estimating the effect of legalization upon wages, we face a number of econometric challenges. First, through the use of rich panel data, we are able to control for the fact that individuals with higher time invariant unobserved ability, which will raise earnings regardless of legal status, may be more likely to obtain legal status. Second, we use a more appropriate counterfactual as a control group against which to compare the outcomes of those who obtained legal status: those who were undocumented in both the first and last periods. Finally, we use two sources of exogenous variation to instrument for the potentially endogenous changes in legal status. Our two sources of variation allow us to identify two distinct labor market effects of legalization: 1) We use a consistent panel of data for both workers who obtained legal status and for those who did not; 2)we are the first to use an instrumental variables strategy that allows us to identify individual specific effects of legal status from the general equilibrium effects on labor markets that follow from a mass legalization. Todd Sorensen is an Assistant Professor at the University of California, Riverside, Fernando Lozano is an Assistant Professor at Pomona College. Please direct correspondence to Todd Sorensen at [email protected].