Immigration and the Informal Economy

Employment in the informal sector is thought to be large, growing, and connected to workers on the margin, specifically low-wage workers and immigrants. Additionally, informal work is expected to be connected to immigration through the growth of ethnic economies and because some immigrants lack legal documentation to work in the U.S. We develop state-level proxies for informal employment using differentials between measures of total employment and officially sanctioned employment. We rely largely on self-reports in population surveys to capture total employment and ES-202 employment records for officially sanctioned employment. In two industries commonly associated with under-the-table labor, construction and landscaping, we develop another set of proxies for informal work based on productivity per officially sanctioned worker. We relate each set of proxies for informal employment to changes in immigrant population and composition. We find some evidence that corroborates public perception; immigration appears to be associated with informal employment generally, and in the construction industry when prevailing wages are low. States with high concentrations of low skilled male immigrants appear to have higher levels of informal employment in the landscaping industry