The Native-Immigrant Wage Gap in the United States

Carl Sanders and Rebecca Lessem
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Rebecca Lessem: Carnegie Mellon University

No 1206, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: Immigrant workers in the US earn less than similar native workers. The economics literature has focused on documenting this gap, but usually not on finding the underlying causes. Without understanding the determinants of the wage path of immigrants, it is difficult to know what classes of policies would be the most effective to close the gap. This paper aims to quantitatively attribute the wage paths of immigrants into two underlying economics forces. First, labor market experience in the US may be more valuable for jobs in the US than labor market experience in other countries. Second, it can take time for new immigrants to be matched with their optimal occupation after moving to the US. Our empirical strategy consists of two parts. In the first, we identify patterns of wage growth and occupational change of immigrants from the New Immigrant Survey, particularly focused on difference between occupations in home countries and the United States. Usually data on home country jobs is not available so these comparisons are not possible. The descriptive statistics show that wage growth for immigrants is explained both by legal and illegal time in the US labor force as well as upwards occupational mobility. Then to quantitatively estimate the importance of the returns to experience versus job search, we develop a simple model of on-the-job human capital accumulation and job search that can replicate the observed patterns. We then use the estimated model to simulate counterfactuals to understand the importance of each factor.

Date: 2013
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