The impact of mandated employment verification systems on state‐level employment by foreign affiliates

Abstract

Faced with diminishing prospects for a comprehensive immigration reform at the federal level, states have started to take immigration matters into their own hands. For example, many states have been mandating the use of employment verification (E‐Verify) systems to confirm work eligibility. Some of the consequences of these E‐Verify mandates remain unclear. In this article, we focus on the effect of anti‐illegal immigrant laws on foreign investment. Specifically, we exploit the state‐level and time variation in the enactment and implementation of E‐Verify mandates to explore if punitive measures against the firm impact states' ability to attract foreign direct investment (FDI). We quantify FDI through the employment by U.S. affiliates owned by foreign firms. Our results suggest that E‐Verify mandates adversely affect employment among these majority‐owned U.S. affiliates and, therefore, work against states trying to attract FDI.