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Ciclo de Seminarios de Economía 2013

Expositor: Rodolfo Manuelli

Washington University in St. Louis


“The Dynamics of Immigrant Earnings”

"La dinámica de los ingresos de los inmigrantes"

Fecha: Jueves 20 de junio, 17:00 hs.


Lugar: Prudencio de Pena 2544 - Salón B001 - Universidad de Montevideo


It is a well-established fact that earnings of immigrants and natives are not equal even when they have similar levels of schooling. Moreover, the evidence suggests that the dynamics of earnings over the life cycle are different for natives and migrants. We summarize the evidence in the following "facts":

·   Migrants vs. Stayers. Migrants and stayers with the same schooling have different age-earnings profiles. Upon migration, migrants earn more and their earnings grow faster than the earnings of stayers.

·   Migrants vs. Natives. Even after controlling for schooling, migrants earn initially less than natives. However, they show steeper age earnings profiles. The gap in initial earnings is negatively related to the level of GDP per capita in the country of origin.

·   Option to Migrate. There is limited but suggestive evidence that increases in the probability that individuals be allowed to migrate to a high wage location has a positive (and large) effect on investments in human capital of the whole eligible population.


In addition to those "facts" there is some evidence that suggest that:

·   Scale: Migrants tend to be drawn from the ranks of the high skilled.

·   Positive Selection: The mix of skilled/unskilled (immigrants) in the destination country is higher than in the sending country.

·   Positive Sorting: The higher the wage in the receiving location the larger the ratio of skilled to unskilled immigrants.


    This paper presents a version of the human capital model originally developed by Ben Porath augmented with the decision to migrate to understand the forces that can account for these observations. Our work can be viewed as a dynamic version -with endogenous accumulation of human capital- of the more standard Roy model that is the workhorse of the migration related literature.

    First, we explore the theoretical implications of the model in the case of unanticipated migration. We show that, at least qualitatively, the predictions of the theory match the evidence about the difference in age earnings profiles between migrants and stayers. In this case the key mechanism is that migrants and stayers face different prices and, hence, they make different decisions in terms of on-the-job training efforts that result in a steeper age-earnings profile for the individuals in the high wage location.

    We then explore the implications for the differences between migrants and natives. A key insight is that in the model if two individuals chose to acquire the same amount of schooling in different economic environments, then they cannot be identical. Moreover, in a model that allows education to be two dimensional ---with a quantity dimension as measured by years of schooling, and a quality dimension that we view as a better measure of human capital--- it is optimal for the individual in the low wage location to choose a lower quality of schooling. This, in turn, implies that he has lower human capital than a native at the time of migration. These two results explain both the lower initial earnings ---because initial human capital is lower - and the steeper age-earnings profiles - because the migrant must have had higher innate ability to choose the same years of schooling in a lower return environment. Moreover, since the "quality" of human capital holding years of schooling constant varies positively, the model also accounts for the observation that migrants from poorer locations earn less than migrants from higher income regions.

    Our view implies that differences in earnings are not a good measure of differences in TFP across countries. Thus, our approach contrasts with the more standard approach, as exemplified by Hendricks (2002), that views differences in earnings for migrants and natives with the same schooling as direct measures of TFP. This view is silent about the differences in age-earnings profiles.

    We study the impact of facing individuals with a known probability of migration in a context in which migration is costly in terms of goods and human capital. Our main result suggests that whether there is positive or negative selection depends in a somewhat complicated manner on the "size" of the stock of human capital lost, the differences in wage rates between the sending and receiving locations and the age of the potential migrant.

    We then use a calibrated version of the model to understand whether human capital and selection can account for the evidence on the earnings of immigrants in the U.S. Even though our exercise is very preliminary, we find the results encouraging as the model seems consistent with the data".



Rodolfo Manuelli es doctor en Economía por la Universidad de Minnesota, “James S. McDonnell Distinguished University Professor” en Washington University in St. Louis e Investigador en el Federal Reserve Bank of St. Louis. Se especializa en las áreas de Crecimiento y  Desarrollo Económico, Macroeconomía y Economía Monetaria.

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Ciclo de Seminarios de Economía 2013
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