published in: Journal of the European Economic Association, 2004, 2 (4), 665-695
This paper develops a descriptive methodology for the analysis of wage growth of
immigrants, based on human capital theory. The sources of the wage growth are: (i) the rise
of the return to imported human capital; (ii) the impact of accumulated experience in the host
country; and, (iii) the mobility up the occupational ladder in the host country. Using human
capital theory, we derive a non-linear model that imposes restrictions across the earning
equations of natives and immigrants. The two earning functions are estimated jointly, using
repeated cross section data. Using data on immigrants from the former Soviet Union to
Israel, we find: Upon arrival, immigrants receive no return for imported skills. In the ten years
following arrival, wages of highly skilled immigrants grow at 8% a year. Rising prices of skills,
occupational transitions, accumulated experience in Israel and economy-wide rise in wages
account for 3.4, 1.1, 1.5 and 1.4 percent each. In the long run, the return for schooling
converges to .028, substantially below the .069 for natives. We do not reject the hypothesis
that the return for experience converges to that of natives, and immigrants receive higher
return for their unmeasured skills. We find that there is some downgrading in occupational
distribution of immigrants relative to that of natives. Moreover, the average wages of
immigrants approach but do not converge to the wages of comparable natives. The main
reason for that is the low return to their imported skills.
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