Employing Undocumented Workers: Immigration Enforcement Impacts on Small Businesses And The Role of Bank Monitoring

The staggered rollout of the Secure Communities program, a shock to undocumented labor, raised per-firm wages and (formal) employment, alongside firm closures in sectors more reliant on undocumented workers, as well as the overall unemployment rate. These reflect firms substituting undocumented workers with costlier formal labor, rendering marginal firms unviable and raising overall unemployment. Small business–level data show that unbanked firms exhibit stronger increases in employment and closures. Among banked firms, effects are stronger for those facing weaker ex-ante local bank monitoring. Overall, these patterns imply a deputization-like effect of banking relationships in deterring borrowers from employing undocumented workers.