Immigrants are a significant and growing component of the labor force of many developed countries. They also contribute to home countries in multiple ways including through remittances that have increased 12-fold in the past three decades. Yet, there is limited research on how macroeconomic factors, linking and impacting host and home countries, influence immigrants. In this paper, we investigate how one such macroeconomic factor - short-term movements in exchange rate between the U.S. dollar and home country currencies - affect labor supply of immigrants living in the U.S. Our study is the first and only study to investigate the association between immigrant labor supply and exchange rate in the U.S.
1)Data and Sample
Our study is based on data from two large nationally representative surveys: Current Population Survey(CPS) ASEC for the 1994-2019 year and the monthly CPS from 1996 to 2019. We merged these data with exchange rate data from IMF and other macroeconomic data from World Bank. We also restrict the analytic sample to foreign-born individuals from 75 different countries aged 18 to 64 years old who are non-military and employed at the time of the survey. The sample size is 311,060 in CPS ASEC and 1,633,117 in the monthly CPS, respectively.
Our predictor is real exchange rate between immigrants’ home country currency between the U.S.dollar. Main outcomes consist of labor market outcomes (i.e., hours worked and earnings) and attrition to check potential bias from immigrants’ return decisions. We basically use a linear regression with fixed effects to compare immigrants from diverse countries which are faced with all different level of exchange rates shock. In subgroup analysis, we test validity of our findings by examining if immigrant labor supply response differs by occupational characteristics, home country’s economic structure (e.g., emerging economy), and ties with immigrants’ home countries (e.g, years since immigrants).
We find depreciation of home country currency has a modestly negative effect on immigrant labor supply. However, estimated effects turn statistically insignificant in longitudinal models that include individual fixed effects. Further, we find that labor supply response of recent immigrants was greater than those of earlier arrivals and immigrants in more flexible occupations responded more to exchange rate fluctuations than those working in less flexible occupations, these effects too disappear in longitudinal models with individual fixed effects. These findings suggest that earlier findings on the supply response to exchange rate fluctuations should be interpreted with care.
Conclusion and Implications
Our results show that immigrants do not actively adjust their labor market decision in response to macroeconomic conditions of their home country. Siginficant results in prior studies might come from moving in and moving out of immigrants in the U.S., not labor market decision of immigrant. This finding highlights that home country factors do not function as a critical threat to immigrant’s labor market decision.