Brain waste? Educated immigrants in the US labor market

This paper investigates the occupational placement of immigrants in the US labor market using census data. We find striking differences among highly educated immigrants from different countries, even after we control for individuals' age, experience and level of education. With some exceptions, educated immigrants from Latin American and Eastern European countries are more likely to end up in unskilled jobs than immigrants from Asia and industrial countries. A large part of the variation can be explained by attributes of the country of origin that influence the quality of human capital, such as expenditure on tertiary education and the use of English as a medium of instruction. These findings suggest that “underplaced” migrants suffer primarily from low (or poorly transferable) skills rather than skill underutilization. The selection effects of US immigration policy also play an important role in explaining cross-country variation. The observed under-placement of educated migrants might be alleviated if home and host countries cooperate by sharing information on labor market conditions and work toward the recognition of qualifications.     

Education,mobility and the college wage premium

Motivated by large educational differences in geographic mobility, this paper considers a simple dynamic extension of Roy׳s (1951) model and analyzes it using new evidence on net versus excess mobility and the individual-level relationship between mobility and wages. According to the model, the dispersion of a labor income shock specific to a worker-location match is greater for more educated workers and accounts for large educational differences in mobility. In the model, labor mobility raises both the average wage and the college wage premium, a prediction consistent with differences between Europe and the U.S.     

Brain waste? Educated immigrants in the US labor market

This paper investigates the occupational placement of immigrants in the US labor market using census data. We find striking differences among highly educated immigrants from different countries, even after we control for individuals' age, experience and level of education. With some exceptions, educated immigrants from Latin American and Eastern European countries are more likely to end up in unskilled jobs than immigrants from Asia and industrial countries. A large part of the variation can be explained by attributes of the country of origin that influence the quality of human capital, such as expenditure on tertiary education and the use of English as a medium of instruction. These findings suggest that “underplaced” migrants suffer primarily from low (or poorly transferable) skills rather than skill underutilization. The selection effects of US immigration policy also play an important role in explaining cross-country variation. The observed under-placement of educated migrants might be alleviated if home and host countries cooperate by sharing information on labor market conditions and work toward the recognition of qualifications.     

Increasing dispersion of skills and rising earnings inequality

In recent decades many countries have simultaneously liberalized their trading regimes and expanded their education systems. The theoretical effect of these regime shifts on the wage differential between skilled and unskilled workers is ambiguous. On the one hand, openness to trade causes demand shifts in the labor market which may widen or narrow the differential. This result depends on whether the unskilled wage is depressed, as in the case of importing countries, or raised, as in the case of exporting countries. On the other hand, an increased supply of more educated workers reduces their wages and narrows the skill wage gap. In this study of the labor market of Hong Kong, we document that recent changes in response to the trade liberalization of Mainland China and expanded access to education have increased the earnings differential between skilled and unskilled workers. Using detailed census data, we argue that the main reason for this outcome is the widened dispersion of skills across the earnings distribution, resulting from demand and supply shifts in the labor market caused by trade openness and expanded access to higher education.     

The Prospect of Migration,Sticky Wages,and “Educated Unemployment”

An increase in the probability of work abroad, where the returns to schooling are higher than at home, induces more individuals in a developing country to acquire education, which leads to an increase in the supply of educated workers in the domestic labor market. Where there is a sticky wage rate, the demand for labor at home will be constant. With a rising supply and constant demand, the rate of unemployment of educated workers in the domestic labor market will increase. Thus, the prospect of employment abroad causes involuntary “educated unemployment” at home. A government that is concerned about “educated unemployment” and might therefore be expected to encourage unemployed educated people to migrate will nevertheless, under certain conditions, elect to restrict the extent of the migration of educated individuals.     

Income Distribution Dynamics with Endogenous Fertility

Developing countries with highly unequal income distributions, such as Brazil or South Africa, face an uphill battle in reducing inequality. Educated workers in these countries have a much lower birthrate than uneducated workers. Assuming children of educated workers are more likely to become educated, this fertility differential increases the proportion of unskilled workers, reducing their wages, and thus their opportunity cost of having children, creating a vicious cycle. A model incorporating this effect generates multiple steady-state levels of inequality, suggesting that in some circumstances, temporarily increasing access to educational opportunities could permanently reduce inequality. Empirical evidence suggests that the fertility differential between the educated and uneducated is greater in less equal countries, consistent with the model.     

Real option,human capital investment returns and higher educational policy

This paper incorporates the concept of real option into a modified Harris–Todaro model to investigate the relationship between higher education and unemployment rates. We found that the real option value of waiting to invest in graduate school education will decrease when the expected wage rate of labors with an undergraduate degree becomes relatively lower than that with a graduate degree. As a result, more undergraduate students will decide to go to graduate schools immediately after graduation. As the supply of labors with a graduate degree increases and the job creations fail to meet the increasing demand, those who cannot get a graduate-level job will be willing to accept job offers lower than their education level. Our modified Harris–Todaro model shows that it will lead to an increase in the number of unemployed and underemployed higher educated labors. This explains why the unemployment rates for higher educated labor are relatively high in some developed countries.     

International Factor Mobility,Wages and Prices

This paper analyzes the joint influence of migration inflows and outward foreign direct investment (FDI) on wage bargaining. Labor migration and offshoring supported by FDI affect wage deals by changing the outside options of workers and firms. Unemployed workers may find alternative jobs either in the legal or in the illegal labor markets. Wages in this latter case are highly affected by migrants crowding this segment more than any other market. Firms may have the option of moving production partly or entirely to foreign low‐cost countries. A wage curve is designed theoretically, reflecting cross‐border labor and capital mobility, and estimated on panel data for 13 European countries over the period 1995–2013. The theoretical predictions of a joint negative effect on wages of FDI outflows and labor migration inflows are confirmed with some novel results.     

International Productivity Differences,Trade and the Distributions of Factor Endowments

This paper presents a model of task assignment and worker matching to explore how the distributions of labor endowments within countries influence aggregate productivity and international trade patterns. Higher moments of the skill distribution have complex relationships with the organization of the labor force. First, labor endowments skewed toward high abilities exhibit positive assortment of workers across tasks, while countries with distributions of ability skewed towards low abilities exhibit underemployment. Second, greater dispersion improves aggregate productivity in countries that experience underemployment, but worsens productivity where there is assortative assignment. Furthermore, the shape and size of factor endowments are shown to jointly determine a global pattern of comparative advantage. Countries are more likely to export their abundant factors when labor markets organize heterogenous workers effectively. These predictions receive empirical support from Organization for Economic Co‐operation and Development (OECD) countries using measures of diversity constructed from educational attainment.     

Catching up? The educational mobility of migrants’ and natives’ children in Europe

Migrants into European countries are often less educated than European natives. We analyse whether migrants’ children are more or less likely than natives’ children to achieve upward educational mobility across generations, and study differences in the factors, which contribute to differences in mobility for the two groups. We find that migrants’ descendants are more often upwardly mobile (and less often downwardly mobile) than their native peers in the majority of countries studied, and show that the main factor contributing to these patterns is the education level of parents. Although a lower parental education means that their children are less likely to access the same amount of human, social and financial capital as children of more highly educated parents, migrants’ descendants over the last two generations were able to make significant progress in reducing education gaps with natives.     

Financing Higher Education in a Mobile World

This paper analyzes how integrated labor markets affect the financing of higher education. For this, we employ a general‐equilibrium model with overlapping generations and individuals who differ in their abilities. At the first stage, governments can choose the quality of education and the financing system. At the second stage, individuals make their education and migration decisions given the governmental framework for higher education and the mobility assumptions. In a closed economy and in the presence of imperfect credit markets, a mix of tax‐ and fee‐financing is optimal. In integrated labor markets, countries have an incentive to attract skilled workers and to free‐ride on education provided by other countries. When only skilled workers are mobile, there is a suboptimal shift from taxes to fees and the number of students is too low. When also students can migrate, there is a countervailing force such that maintaining the optimal financial mix becomes possible.     

Allocation of Labor in Urban West Africa: Insights from the Pattern of Labor Supply and Skill Premiums

Using comparable data from five West African capitals, we assess the rationale behind development policies targeting high rates of school enrollment through the prism of allocation of labor and earnings effects of skills across the formal and informal sectors, and not working. We find that people with high levels of education allocate to the small formal sector, while less educated workers allocate to the informal sector. While high levels of education are given more value in the relatively smaller sectors of salaried employment, observed skills like education appear to be fairly unprofitable in the larger self-employment sector. The fact that only the small formal sector in urban West Africa both seems to absorb highly educated workers and provide high skill premiums may be an important reason for the observed low demand for education and high dropout rates.     

The Skill Premium, Technological Change and Appropriability

This paper demonstrates that an increase in the relative supply of educated workers generates a structural change in the production structure towards a knowledge-intensive production process. This structural shift may ultimately lead to an increase in the return to educated labor despite the increase in their supply. The paper argues that the steady increase in the supply of educated workers that most Western economies have experienced in recent decades may be viewed as the driving force behind the observed pattern of wage inequality. In particular, the paper demonstrates that if firms can appropriate a sufficient share of the intertemporal return from knowledge generating activities of their labor force, a gradual increase in the supply of skilled workers would generate only a temporary reduction in the skill premium followed by a permanent increase in the return to skill.     

The Uncertainty of Academic Rent and Income Inequality: The OECD Panel Evidence

The article presents an alternative view on the education—income inequality relationship, which calls into question the neoclassical claim that education increases labor productivity and hence contributes to a higher output, wage and consequently more even income distribution. In the context of public policies, education needs to be seen not only as a factor of income mobility, but also as a “positional good,” which benefits graduates at the expense of non-graduates. Education generates “academic rent,” by which we mean uneven remuneration of workers based on academic signs of distinctions that do not necessarily reflect differences in productivity. Using the robust panel model on a sample of OECD (Organization of Economic Co-operation and Development) countries from 1980 to 2015, we show that investments in human capital lead to lower inequality, but overinvestments tends to increase income inequality, which may be related to academic rent. In discussing this result, we consider that uncertainty of academic rent under the condition of a rapid transformation of the workplace caused by the fourth industrial revolution.     

A Regional Analysis of the Impact of Trade and Foreign Direct Investment on Wages in Mexico, 1984–2000

The conventional Heckscher–Ohlin model of trade predicts an equalizing effect of trade on wages in developing countries abundant in less‐skilled labor. Contrary to these predictions, skill premiums and skill demand increased in Mexico following trade liberalization. “New” trade theories have offered several channels through which trade can increase relative wages and demand for skilled workers. One such channel is foreign direct investment and outsourcing. Using the Mexican Household Income and Expenditure Survey (ENIGH) covering 1984–2000, the author examines the relationship between the demand for skill and maquiladora employment across regions and states. In contrast to previous studies based on manufacturing data for the 1980s, little evidence is found that growth in maquiladora employment is positively related to the increase in relative wages or wage‐bill share of more educated workers.     

Labor Mobility and East Asian Integration

East Asian economic integration is commonly analyzed in the context of trade in goods and services and capital flows, while labor flows have been very much neglected. Yet labor flows in the region are rapidly growing, given the diversity in levels of economic development, employment opportunities and wage levels, and the existence of labor surplus and deficit countries. Labor migration poses more benefits than costs for both sending and receiving countries, but there are more sensitivities toward labor flows than trade and capital flows. The characteristics and government policies are different for the unskilled and semiskilled foreign workers and for the professionals and highly skilled. Regional cooperation among countries is needed to manage the flows, reduce the incidence of illegal and undocumented workers, reduce the transaction costs of migration, and protect the rights of these workers.     

Why and How Education Affects Economic Growth

This paper suggests an additional channel through which education affects economic growth. If growth is driven by industrialization of production, where machines replace labor in a growing number of tasks, then operating these machines requires workers who are educated, namely literate and know arithmetic, whose human capital is less specific and more general. As a result, technology adoption depends negatively on wages of educated workers. Hence, economic growth depends negatively on the cost of education or on the barriers to acquire education. The model shows that if the cost of education is high, economic growth might be slow and even stop completely, creating a development trap.     

Job autonomy and education-skill matches of immigrant workers in Germany

This letter examines the determinants of occupational autonomy and education-skill matches of immigrant workers in Germany. Their jobs are characterized by much lower autonomy than those of comparable natives and the immigrant penalty decreases only minimally over time. In contrast to wages, the difference between immigrants from advanced and non-advanced countries is small. But immigrants from advanced countries are much more likely to have a job matching their qualification. The probability of a match does not increase over time for highly educated immigrants, but does for others. Highly educated immigrant women have an additional disadvantage. In some industries low autonomy and skill downgrading of immigrant workers are particularly common.     

Dual Poverty Trap: Intra‐ and Intergenerational Linkages in Frictional Labor Markets

This paper constructs an overlapping generations model with a frictional labor market to explain persistent low education in developing countries. When parents are uneducated, their children often face difficulties in finishing school and therefore are likely to remain uneducated. Moreover, if children expect that other children of the same generation will not receive an education, they expect that firms will not create enough jobs for educated workers, and thus are further discouraged from schooling. These intergenerational and intragenerational mechanisms reinforce each other, creating a serious poverty trap. Escape from the trap requires the well‐organized and combined implementation of a subsidy for schooling, support for disadvantaged children, and public awareness programs.     

Rural-urban migration,urban unemployment and underemployment,and job-search activity in LDCs

A quantity adjustment framework is used to analyze unemployment and underemployment in less developed countries (LDCs). The basic premise of the formal theoretical model presented is that the same kinds of forces that explain the choices of workers between the rural and urban sectors can also explain thier choices between 1 labor market and another within an urban area and are most likely made simultaneously. The decision makers, whether family units or individuals, are presumed to consider the various labor market opportunities available to them and to choose the one which maximizes their expected future income. In the model the primary equilibrating force is taken to be the movement of workers between labor markets, not changes in wages. The point of departure is the received theory of rural urban migration in LDS, which is the model of Harris and Todaro (1970). The 1st step is a summary of the basic features of the model. While accepting their basic approach emphasizing movement of workers rather than changes in wages, it is shown that the particular implication of the model with respect to the equilibrium urban unemployment rate substantially overstates the rates actually observed by Turnham (1971) and others. The analysis is then extended to consider several important factors which have previously been neglected--a more generalized approach to the job search process, the possibility of underemployment in the so-called urban "murky sector," preferential treatment by employers of the better educated, and consideration of labor turnover--and demonstrate that the resulting framework gives predictions closer to actual experience. Harris and Todaro in their original discussion concluded that a combination of a wage subsidy in the modern sector and physical restriction of migration would be required to realize a first best state lying on the economy's production possibility frontier. Subsequently Bhagwati and Srinivasan (1974) challenged them and demonstrated that a first best solution can be achieved by means of a variety of alternative tax or subsidy schemes, none of which require migration restriction. This analysis suggests 3 additional policy variables, beyond those considered by either pair, which might be expected to have an important effect on the volume of unemployment and underemployment in LDCs: a smoothly functioning labor exchange would reduce the incentive to remain unemployed while searching for a superior job; the size of the educational system would also influence the amount of unemployment; and it is job hiring in the modern sector, more than the number of jobs, which primarily influences workers' locational decisions.