Do Immigrants Assimilate Economically?

1. Do Immigrants Assimilate Economically? Harrison Brown

2. The Borjas Model • Predicts the skill levels of immigrants by determining the relative returns to skills between source and host countries. • Negative self selection: the transfer of low-income individuals from a source country to a host country with a more equal income distribution • According to the model, highly skilled workers have greater income potential in high income inequality countries. Unskilled workers have greater income potential in low income inequality countries.

3. Criticism: OECD Data • Even when the migrants come from source countries with high income inequality, they tend to be skilled and educated. • The observed positive self-selection contradicts the Borjas model. • This effect is largely a result of competition among OECD countries for highly skilled immigrants. • Countries with relatively equal income distributions can attract skilled immigrants, but those with higher income inequality still retain an advantage.

4. Criticism: Mexico Data • Mexico-U.S. migration patterns indicate “intermediate selection” overall and positive selection for women. • The Borjas model would expect to see low-income individuals moving from Mexico to the U.S. since the U.S. has lower income inequality. • More educated individuals may have better access to migration networks. • Job competition and illegal immigration enforcement could also weed out the less skilled

5. Assimilation and Wages • The assimilation process does not even the economic playing field for immigrants. • Immigrants with higher human capital levels experience faster wage rate growth upon entering the United States. • Country characteristics used to determine human capital: Per capital GDP, Gini Coefficient, economic “openness,” distance to the United States, source country political instability, and the Herfindahl index. • Individual components are important to determining the assimilation potential of specific immigrant groups.

6. Assimilation and Welfare • Swedish welfare data indicates the following: • Observable socioeconomic characteristics cannot explain differences in welfare consumption between natives and immigrants. Immigrants are more likely to participate in welfare systems than natives. • Immigrants in Sweden assimilate out of the welfare system with time. • Refugee immigrants have higher welfare participation rates than non-refugee immigrants

7. Assimilation and Welfare (Cont.) • These findings differ from data in the United States, Canada, Australia and Germany. • This literature argues that observable characteristics may explain differences between immigrants and natives. • The literature also indicates immigrants assimilate into welfare dependency with time. • These discrepancies could be caused by unique Swedish labor market perceptions of immigrants or the generosity of the Swedish welfare system.

8. Conclusions • The answer to the question is complex. • Swedish data suggests that immigrants do assimilate economically since they leave welfare programs, but this concept cannot be applied globally. • Wage patterns indicate immigrants with high human capital levels assimilate better than those with low human capital and experience faster wage growth. • If the critiques of Borjas are correct, immigrant populations reflect higher skill levels than predicted and will be better prepared to assimilate economically.