The labor market "quality" of immigrants is a subject of debate among immigration
researchers, and a major public policy concern. However, traditional methods of measuring
human capital are particularly difficult to apply to recently arrived immigrants. Many factors
that have a negative effect on entry earnings also increase either the incentive or the
opportunity for faster human capital investment and earning growth. In addition, many
country-of-origin acquired skills that are not immediately valued in the U.S. labor market are
useful to the acquisition of U.S. skills. Thus entry earnings are not a good measure of the
stock of immigrant human capital.
This article presents a model of immigrant human capital investment and, using 1970-
1990 census data, presents strong evidence of a systematic and important inverse relationship
between initial immigrant earnings and subsequent earnings growth. This result – which persists
even after accounting for differences in the immigration flows from different countries, sampling
error, and the effects of emigration – is fundamentally different from both earlier cross-sectional
estimates and more recent pooled models that constrain cohort growth rates to be equal.
Although our model provides theoretical support for an inverse relationship only when source
country human capital is held constant, faster earnings growth for low-entry-earnings immigrants
is found empirically even when age and education are not controlled for.
The immigrant human capital investment model presented here explores general
principles that may apply to other labor market transitions that involve skill transferability –
including occupational change and labor market reentry.
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