Abstract
The IHCI model suggests that two widely accepted practices when modeling immigrant earnings growth are incorrect. First, the IHCI model suggests that earnings growth rates will vary by the level of initial earnings. Most studies allow entry earnings to vary across time or countries of origin but constrain the earnings growth rate to be the same across year-of-entry cohorts for given groups. Second, individuals not working, in school or self-employed are typically excluded from analysis. The IHCI suggests that these choices upon arrival are an important part of the dynamic path of earnings for immigrants. Omitting these immigrants omits those who are pursuing job search and learning, instead of earning. Excluding such individuals likely understates immigrant earnings growth, particularly for groups with low initial skill transferability.
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Notes
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In his 1986 paper, Chiswick (p. 188) notes the bias created in earning growth estimates when controlling for education and comparing two groups with different rates of school attendance:
… the earnings analyses here and in Borjas (1985) bias downward the cohort increase in earnings over the decade by controlling for schooling level in the same year as the earnings data, rather than schooling level in 1970. While this downward bias occurs for all groups, it is likely to be more intense for Cuban and other refugees as they invest in more post immigration schooling. Thus the downward bias in the estimated growth of earnings would be greater for the Cubans than for other whites.
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This is, of course, standard professional practice for labor economists estimating the rate of return to education and experience from Mincer earnings functions. Excluding the self-employed, for example, has a practical econometric tradeoff; to the extent that the self-employed have different unmeasured characteristics, excluding them introduces a sample selection bias, but also removes returns to physical and financial capital from reported earnings.
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Lofstrom (2002) finds that including the self-employed reduces the immigrant-native earnings gap by 14%.
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Sample comparability is not an issue when analysts follow the same individuals with longitudinal data.
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For occupational mobility, see Akresh (2006, 2008), Chiswick (1978), Chiswick, Lee, and Miller (2005), Chiswick and Miller (2008, 2009), Green (1999), Jasso and Rosenzweig (1990, 1995), and Zorlu (2013). For educational investment see, for instance, Duleep and Regets (1999), Chiswick and DebBurman (2004), Van Tubergen and van de Werfhorst (2007), and Jasso and Rosenzweig (1990).
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Duleep, H., Regets, M.C., Sanders, S., Wunnava, P.V. (2020). Methodological Implications of a Human Capital Investment Perspective. In: Human Capital Investment. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-47083-8_5
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