Short run wage effects of the Arizona employer sanctions law

In the wake of several states recently passing laws combatting illegal immigration, there is a pressing need to understand how such laws effect labor market outcomes. This paper examines the 2008 Legal Arizona Workers Act (LAWA) and its short run effect on wages in California and Arizona. LAWA empowers Arizona's county attorney's offices to issue the "death penalty" to businesses that "knowingly or willingly" hire undocumented workers. LAWA also mandates all businesses in the state use the E-Verify system to check the employability status of potential new hires, while sharply increasing penalties for certain types of identity theft offenses. We estimate wage effects using a difference-in-difference-in-differences (DDD) strategy across treatment-control states, treatment-control industry groups, and pre-post treatment periods. Dynamic panel equations are also estimated assuming "sluggishness" in the labor market. In this paper we allow for undocumented labor to respond to LAWA by leaving Arizona and relocating to California. LAWA results in an exogenous shock to the supply of undocumented labor in California. This immigration event provides an opportunity to study the impact of undocumented worker flows on documented worker wages. Results provide evidence that LAWA resulted in short run wage declines for documented workers in Arizona and for both documented and undocumented workers in neighboring California. Wage declines in California appear to have been at least partially mitigated by subsequent wage gains.