Minimum wage and immigrants' participation in the welfare system: evidence from France

This study examines how minimum wage laws affect the share of immigrants receiving welfare benefits. Minimum wage increases might have larger effects among low-skilled immigrants than among low-skilled natives because, on average, immigrants are less productive. We develop an analytical framework in which a government legislated minimum wage increase promotes a decrease in labor demand and an increase in the earned wage. The net impact on the expected wage is then ambiguous and so is the impact on search effort of unemployed. However, we expect the reduction in labor demand to be more important for immigrants due to their lower productivity. Immigrants remain unemployed and eventually become welfare recipients. Using the French Labor Force Surveys 2003-2016 we exploit the 2006 and 2012 government legislated minimum wage increases and find consistent evidence that a discretionary increase in the minimum wage induces a rise in the share of immigrants receiving welfare benefits which is more important than the rise estimated for natives. This result is driven by low-skilled immigrants and no significant effect arises for high-skilled. Endogeneity issues are addressed through an IV approach