Wage gap profiles of a new group of Asian immigrants:
effects of larger inflows∗
Sukanya Basu
University of Rochester
and
Vassar College
First Draft: July 2009
This Draft: October 2010
∗
I am grateful to Uta Schoenberg and Ronni Pavan for their suggestions and support with this
paper and other research. I would also like to thank Mark Bils, Gregorio Caetano, Josh Kinsler and
Ross Messing, as well as seminar participants at the University of Rochester and Vassar College, for
helpful comments. All errors and omissions are mine. Please contact the author with comments and
suggestions at [email protected]
1
Abstract
This paper presents wage-gap profiles of a rapidly growing group of ”new”
Asian immigrants from countries that were under-represented in the US until
1965. Entry-level wages and assimilation rates fall across cohorts. However the
wage gap versus natives widens for all new Asian cohorts after the second decade
of stay, which is not seen for other immigrant groups. I use an impact of immigration argument to investigate the difference in curvature. If occupations are
imperfect substitutes, and natives and immigrants are worse substitutes than
entrant and established immigrants within occupations, then the comparatively
larger increases in occupation-specific new Asian inflows have a more negative
impact on wages of new Asians, compared to other groups. The explanation is
studied in a nested CES framework. Elasticity parameters are estimated using
cross-metropolitan variations in occupational and immigrant labor supply. The
paper follows Card (2009) to create an instrument for regional labor supplies.
Finally, to assess the power of this explanation, I also use model estimates from
1990 to predict the wage gap between natives and new Asians in 2000 which
can be attributed to competition from increased supply of substitutes. For each
occupation, the model predicts a wage gap that is larger than the real gap the difference arises from gains in quality in the 1990s made possible by an
immigration policy that favored high-skill labor.
1
Introduction
Immigration, in recent years, has become a contentious political, economic and
social topic in the U.S. Interest in this subject has been renewed in past decades, given
the surge in numbers of the foreign-born after the enactment of the Immigration Act
of 1965 which abolished the national-origin quotas that had been in place in the
United States since 1924.1 As of 2000, one out of every seven labor force participants
in the U.S. is an immigrant, as opposed to one in every 20 in 1960.2 The ethnic composition of immigrants has changed since the 20th century. The immigrants entering
1
The 1965 act is also known as the Hart-Cellar Act (1). The act still maintained a cap on
the overall number of immigrants entering U.S. The number of immigrants from the Eastern and
Western Hemispheres respectively were also regulated.
2
Numbers are taken from the 1960 1% Census and the 2000 5% Census IPUMS samples.
2
USA in the early 1900s originated from southern and eastern Europe, whereas recent
immigrants arrive from Asia and Latin America.3 Furthermore, the skill compositions
of new immigrants and natives are different.4 The changing trends have sparked a
debate on the impact of immigration on wages of the native labor force and rising
wage inequality in the U.S., with Borjas (2003) concluding that low-skill natives have
felt a 5-10% decrease in wages and Card (2001) maintaining that the U.S. native labor
force remained unaffected. On the other hand, most economists agree that high-skill
immigration will play an important role for improving the quality of the U.S. labor
force in the future.
The 1965 Act was instrumental in allowing more immigrants from the third world,
especially Asia and Africa, to enter the U.S. in large numbers. This paper focuses on
the labor market outcomes of a group of immigrants from “new” Asia (India, Korea
and Vietnam) and the impact that their increasing numbers have had on their own
wages. New Asians are contrasted with old Asians - the Chinese and the Filipinos,
who have had a longer history of stay in the U.S. since the early 20th century. First,
using data from Censuses 1970 to 2000 and ACS 2007, I present features of the wagegap profiles of different cohorts from new Asia versus white natives and compare their
profiles to other immigrant groups. More recent cohorts from new Asia have a larger
entry-level wage-gap and lower rate of wage gap convergence as they age in the U.S.
These features are seen for recent cohorts of most groups of immigrants and have
been well documented (Borjas 1994, 1995). The interesting and unique feature of
new Asians is that wage-gap profiles are hump-shaped for all cohorts; the gap versus
3
The Census 2000 estimates that almost 50% of immigrants are Hispanic, with 60% of Hispanic
immigrants arriving from Mexico. Asian immigrants make up 22% of the immigrant population,
whereas European immigrants account for only 15%. See figure 3 for compositional changes in the
foreign-born labor force of USA between 1970 to 2007.
4
30% of immigrants have less than a high-school degree compared to 12% of natives. The proportion of college graduate immigrants and natives is similar - about 25%.
3
natives does not improve or even widens after their second decade of stay. For other
immigrant groups, wage gaps improve throughout their working life in the U.S. The
differences in curvature of profiles between the new Asian and old Asian countries are
illustrated in figures 1 and 2.
The rationale behind studying this group of “new” Asians extends beyond the
uniqueness of their wage gap profiles. I can track the “deterioration” in quality, if
any, across cohorts. On average, Asian immigrants are “observationally” better than
other immigrants as well as natives.5 However, skill composition and occupational
preferences have changed across cohorts from new Asia. The “pioneer” cohorts from
new Asia had better observable quality and likely to be employed in high-skill-highwage occupations. Educational attainment of new Asians fell between 1970 to 1990,
and there is an associated fall in the number of high-skill workers. Changes in immigration policy in the 1990s favoring skilled immigration have restored the previous
flow of high-skill labor from new Asia. The differences in curvature of wage gap profies
between new Asians and other groups persist even after observable characteristics are
controlled. Fall in quality can extend to unobservable traits which can potentially explain the worse labor market outcomes of recent cohorts from new Asia, but selection
cannot explain the rise in wage gap after the second decade for all cohorts, including
the pioneer.
I investigate the differences in curvatures of the wage-gap profiles among new and
old Asians using an “impact of immigration” argument. It is well known that countryspecific immigrant enclaves and occupation niches persist across cohorts (Patel &
Vella (2007)). The “newness” of immigrants from India, Korea and Vietnam allows
me to observe the formation of geographic clusters and occupational niches for these
countries. If occupations are imperfect substitutes, a large inflow of entrants will have
5
There are significant differences in observable characteristics of the new Asian countries - see
table 1.
4
to be absorbed by the occupation. Additionally, if natives and immigrants within the
occupations are worse substitutes than established and entrant immigrants from the
same country, an inflow will have a disproportionately larger effect on immigrants
compared to natives. Both established and entrant immigrants will be negatively
affected, albeit in different degrees depending on the substitutability between them.
For the impact argument to produce differential effects on new and old Asians, the
rate of increase in shares of the groups across time must differ. Figure 3 shows the
acceleration in the share of different groups within the foreign-born labor force of
the U.S. from 1970 to 2007.6 The share of new Asians in the immigrant labor force
increased ten-fold, while that of old Asians doubled.7 By 2050, the Asian population
is expected to triple, may be even quadruple. The much larger increase in the number
of new Asians will have a more detrimental effect on their wages compared to the
impact of immigration on wages of old Asians. Recent papers by Ottaviano and
Peri (2006) and Card (2009) have discussed the effects of imperfect substitutability
across skill groups and between natives and immigrants. They infer that large-scale
immigration has a small effect on native wages. Instead, the decrease should be seen
in immigrant wages. This paper contributes to the “impact of immigration” literature
by assessing the effects of rapidly growing in ows of substitutes on all immigrants from
the same source countries.
The nested CES production function provides a simple framework to investigate
this idea. Natives and immigrants, differentiated by years of stay, produce output
in three occupation categories - high, middle and low. The substitution parameters
of the nested CES function are estimated using the metropolitan variation in occupational and immigrant labor force. There have been criticisms against cross-region
6
The immigrant share of the U.S. labor force grew a little over two times in this period.
7
As a share of the total labor force, new Asians grew 20 times and old Asians increased five-fold.
5
studies on grounds that metropolitan characteristics may be correlated with relative
wages and labor supplies. Without restrictions on mobility, native and immigrant labor supplies can respond to relative wage differences across regions (Borjas, Freeman
and Katz (1997)). There can be a potential endogeneity problem that biases OLS
estimates. The need for an instrument which is correlated with labor supplies but
unaffected by labor market conditions arises. Following Card (2009), I instrument
for local labor supplies using the predicted occupation specific share of entrants in
the metropolitan population. Stable settlement and occupation patterns of previous
immigrants from every source country are used to predict the residential and occupational distribution of new entrants. Aggregating across all source countries, I get a
predicted inflow of entrants into an occupation and metropolitan area which will be
exogenous as long as national entrant in ows are not affected by local labor market
conditions.
I find a high degree of non-substitutability across occupations. The inverse point
elasticity of substitution estimates among high and middle occupations lie between
0.20-0.35 and between 0.1-0.2 for middle and low occupations. Comparatively, natives and immigrants are better substitutes within occupations, though not perfect.
New Asians are the poorest substitutes for natives compared to other groups. Substitutability between entrant immigrants and their predecessors within an occupation
is greater than the relevant native and immigrant substitutability, except in high occupations. The degree of substitution between new Asian immigrants is even larger,
especially high occupations. Hence, a large occupation-specific inflow of new Asians
will depress their own wages more compared to natives or other immigrants.
An obvious question is about the comparative importance of substitutability and
changing quality in understanding the wage gap. I use the 1990 substitution parameter estimates to predict the wage gap for 2000, given the labor supply for the census
6
year. The idea is to see what portion of the real wage gap can be predicted by competition between substitutes. The difference between the predicted and real wage gap
of 2000 can be attributed to change in quality of immigrants in the previous decade.
Based on increased supply of substitutes, the model predicts larger gaps in high and
middle occupations compared to real gaps. For example, the real middle gap is 14%
in 2000 but the model predicts a 20-21% gap. Improvements in unobservable quality
of new Asians in middle occupations account for the 6% point difference. National
immigration policy in the 1990s established a preferential policy of granting visas to
high-skill immigration. Gains in quality to new Asian immigrants helped to counter
losses from competition. On the other hand, if I use 1980 estimates to predict wage
gaps in 1990, I see that fall in quality of new Asians in the middle occupation accounts
for 5-7% points of the real 19% gap. The predicted gap is 12-14%. Predicted gaps
in high and low occupations are closer to real gaps, hence I find little evidence of a
change in quality of new Asians in these categories.
The rest of the paper is organized as follows. Section 2.2 presents a brief literature
review. Section 2.3 provides details of the immigration histories of the Asian groups
and their labor market trends. Section 2.4 outlines the nested CES model. Section 2.5
discusses the identification strategy and estimation. I introduce the data in section
2.6 and discuss results in section 2.7. Section 2.8 concludes.
2
Related Research
This paper is related to two segments of the immigration literature - the study of
immigrant cohort profiles and the impact of immigration on labor market outcomes of
complement and substitute labor. The first strand of the research has documented the
changes in intercepts and slopes of wage profiles of more recent cohorts extensively.
The fall in entry-level wage outcomes for recent cohorts of immigrants is attributed
7
to the changing composition of the foreign-born labor force away from developed
high-skill countries and towards low-skill developing nations. There is disagreement
about the rate of assimilation of cohorts, with some economists claiming that immigrants successfully learn English and other U.S.-centric skills to bridge the wage-gap
(Lalonde & Topel (1992)) while others claim recent cohorts are of poorer quality and
always earn less (Borjas 1995). Asians are considered to be success stories in the U.S.
labor market. While entry level wage gaps have risen for more Asian recent cohorts,
they achieve parity over their working life (Schoeni (1996), Zeng (2004)).8 For both
women and men, the wage profiles of Asian immigrants are similar to those of U.S.born workers. Asian Americans have the lowest rates of poverty, highest rates of college graduation, highest median household and personal income. However, Schoeni,
McCarthy and Vernez (1996) point out the fact that there are obvious differences in
education, skill composition, language of immigrants from different Asian countries.
Based on the findings of this paper it becomes important to distinguish between Asian
countries. Studies that group Asian immigrants together tend to overlook important
differences in wage trends across countries.
Literature assessing the labor market impact of immigration usually focuses on the
market outcomes of natives both at an aggregate level as well as a more disaggregated
scope where workers are differentiated by education and experience levels. Economists
remain divided on the size and significance of the impact of immigration on native
wages. There are fewer studies dealing with the effects of immigration on immigrants.
Notable exceptions are Borjas (1987) and Lalonde and Topel (1991) who use the
1980 Census show that a 10% increase in immigrant labor supply decreases the wages
of substitutes, especially other recent immigrants, by 9-10%.9 The early impact
8
Zeng and Xie (2004) identify foreign education as the source of any earnings disadvantage that
Asian Americans have relative to white natives.
9
Another closely related paper is Mines and Martin (1987) who find that a new group of undocu-
8
studies estimated a reduced-form wage equation for natives or immigrants to obtain
an elasticity estimate vis-a-vis new immigrants. Grossman (1982), Altonji & Card
(1989) treat foreign-born and U.S.-born as two substitutable groups and find modest
degrees of competition between them. In his 2006 paper, Borjas shows that a 10%
rise in the supply of foreign-born doctorates lowers the wage of competing workers by
3 to 4%. However, many “partial” equilibrium studies ignore cross-substitutability
across skill levels within natives or immigrant groups, or between labor and capital.
The concept of treating immigrants and natives within differentiated skill classes as
separate labor groups is relatively new.
Given the differences in age and skill distributions among natives and immigrants,
it would be incorrect to treat immigrants as a homogeneous group. Education and
experience groups are now treated as imperfect substitutes, as well as the native
and foreign-born workers within these skill classes. Building on Borjas (2003), it becomes important to study the effects of immigration on substitutes and complements.
Different groups of labor, distinguished by observable skill or country of origin, are
combined in an aggregate production function. Ottaviano and Peri (2006), Card
(2009) also use a nested CES model to study the relationship between demand for a
particular kind of labor and relative supplies of other kinds of labor and their productivities. The authors conclude that in the presence of imperfect substitutability
across sectors and between immigrants and natives within sectors, a large inflow of
new immigrants would affect immigrants more than natives.10
This paper also uses a nested CES production function and treats occupations instead of education or experience levels as imperfectly substitutable groups. Workers
mented and inexperienced Mexican workers displaced an established group of legal Mexican workers
in the California Citrus Industry.
10
The authors believe that established immigrants are compensated for their pecuniary losses by
having a larger network of their own people.
9
within the occupations need not be perfect substitutes. Immigrants work in high or
low skill occupations, whereas natives concentrate in the middle. It is also known that
immigrants accept jobs below their skill level in the host country (Dustmann, Frattini & Preston (2008)). The production function in this paper includes an additional
nest between established and entrant immigrants in an occupation. Imperfect substitutability among immigrants may arise from differences in proficiency in English,
absorption of U.S. culture, familiarity with local labor market and social institutions,
and other unobservable skills, that can be functions of the duration of stay. If the degree of substitutability within immigrants is greater than the substitutability between
natives and immigrants, a large in ow of immigrants will negatively affect foreign-born
wages. The model will be explained in detail in section 2.4.
3
A History of Asian Immigration and Labor Market Trends 1970-2000
3.1
The New and Old Asian countries
The Immigration and Naturalization Act of 1965 was meant to end discriminatory
immigration policies by increasing per country quota to 20,000 people irrespective
of race, color or creed. Immigrants from many Asian and African countries, which
previously had sparse representation in USA, began to enter in large numbers. Beside
the relaxation in U.S. immigration policy, domestic political and social changes in
many Asian countries permitted immigration to the USA since the 1960s.
Indians rarely immigrated to USA before 1947 when India became independent
of British rule. In the early 20th century, only a few thousand Indians worked in
California, primarily in the lumber industry and railroads. Many other discriminatory
laws banning Asians from seeking citizenship and restricting the movement of workers
10
from the “Pacific Barred Zone” virtually ended Indian immigration in the 1920s to
the 1940s.11 It was not until 1965 that the first big wave of Indian immigrants is
seen. These immigrants were mostly high-skilled and worked as doctors and engineers.
Indian immigration has since continued unabated. The Information Technology boom
in the late 1990s has given a further impetus to the Indian population in USA which
doubled between 1990-2000. Indian Americans are now the fourth largest group of
immigrants in USA.12
The Japanese annexation of Korea in 1910 halted immigration of Koreans to USA.
Furthermore, the Immigration Act of 1924, often called the Oriental Exclusion Act
was part of a measured system to exclude cheap Korean agrarian labor from the U.S.
After the Korean war of 1953, students and professionals entered in small numbers.
The 1965 Act relaxed quotas on the number of immigrants from source countries,
and large waves of Koreans enter USA. The first waves, like the Indians, were highlyskilled. Koreans in 2000 account for 2.5% of the immigrant population and constitute
the 10th largest group in the foreign-born population of USA.
Prior to 1975, there are only a handful of Vietnamese people in USA, mostly
spouses or children of American military personnel. Vietnamese refugees enter the
U.S. in large numbers only after the end of the Vietnam War. The Indochina Migration and Refugee Assistance Act, 1975, allowed Vietnamese war refugees to enter
the United States under a special status, and Congress granted them relocation aid.
Unlike the first waves Korean and Indian immigrants, cohorts of Vietnamese immi11
Hinduism, the dominant religion of India, also deterred its followers from crossing the “black
waters” into America.
12
It is natural to expect that Pakistan and Bangladesh should be included in the group of new
Asian countries, if India is included. However, it is difficult to track the 1970 cohorts. At the
entry level, the cohort originates from Pakistan. After the Bangladesh Independence War in 1971,
the 1970 cohort has different origins. Overall, wage gap trends for these countries resemble other
new Asian countries. I chose the other three Asian countries because they are among the top ten
immigrant-sending countries to the U.S.
11
grants were not skilled. In 2000, Vietnamese Americans are the 5th largest group of
immigrants accounting for 3.4% of the foreign-born population.
Chinese and Filipino immigrants, on the other hand have a longer history of stay
in U.S. The Chinese were the first Asians to immigrate to USA in the early 19th
century. They worked as farm labor and railroad workers. Exclusionary laws in the
late 19th and early 20th century dampened the movement of Chinese immigrants
into USA, but the 1943 Magnuson Act, once again permitted the entry of Chinese
immigrants in large numbers to USA. The 1965 Act also helped Chinese immigration
by repealing quotas. Filipinos have resided in large numbers in USA since the 1900s,
after Philippines became a U.S. territory. The U.S. army employed Filipino immigrants. Since the 1960s, similarities in quality and structure of the nursing curriculum
in the Philippines and the U.S. have led to the migration of thousands of nurses from
the Philippines to fill the shortfall of registered nurses in the U.S. As of 2000, the
Chinese and the Filipinos are the second and third largest immigrant communities in
USA, surpassed only by Mexicans.13
The shares of Asian immigrants in the changing composition of the foreign-born
labor force of USA are shown in Figure 3. The share of Europeans has declined and
that of Asians and Latin Americans has increased. The proportion of new Asians
has been constantly rising. Their share increased ten-fold between 1970 and 2007,
with the bulk of this increase taking place in the 1980s and 1990s. The share of old
Asians had a two-fold increase and stabilized after the 1990s. Figure 4 compares
the duration composition of old and new Asian immigrants and shows the changes
between 1970 and 2000. 80% of new Asians living in USA in 1970 and 1980 had
immigrated within the last ten years, whereas 45% of old Asians were new entrants.
13
Japanese immigration to the U.S. also has a long history. These Asian immigrants are not
included in the group of old Asians because the rates of return migration are high, and cannot be
controlled for using Census data.
12
By 2000, the duration compositions look similar, with 35-40% immigrants arriving in
the last decade and 30% residing for over 20 years.
3.2
Wage gap profiles of Asian cohorts
It is interesting to note how wage-gap profiles vis-a-vis natives have changed
between the pioneer new Asian cohort and more recent cohorts. Using data from
Censuses 1970 - 2000 and ACS 2007, I plot separate wage gap profiles for the 1970,
1980 and 1990 cohorts of each Asian country versus white natives in figures 1 and
2.14 Each cohort is identified at three points of stay in the U.S. - entry level 0-5 years,
10-15 years and 20+ years.1516 Gaps are obtained from the pooled wage regression of
labor force participants aged 25 to 65 as shown below:
log wi,t = αt + βc,A,t Ii,c,A,t + γt Xi,t + ei,t
Ii,c,A,t =
i =
1 if Immigrant, 0 if native;
(1)
Xi,t = observable controls
individual, c = cohort, A = Asian country, t = Census Year
βc,A,t = average wage gap between white natives and immigrants of country A belonging to cohort c in census year t. Note that for any census year t, a particular cohort
c will be in a different duration of stay from cohort c0 .
The graphs include both the raw and controlled wage gap profiles. I add standard
Mincerian controls which are commonly used in the literature - education, a cubic in
experience, gender, marital status and family size. For all new Asian countries, the
14
The cross-sectional data from the Census permits the creation of quasi-cohorts.
15
Wage gaps for the 1990 cohort are calculated at 0-5 years, 10-15 years and 17-22 years. The
ACS 2007 is the latest data source when the 1990 cohort can be seen. Also, only the entry level
wage gap is shown for the 2000 cohort.
16
Quasi cohorts age with duration with stay, unlike the age distribution of the native population.
An immigrant who entered at age <20 is not included.
13
entry level wage gap of recent cohorts has risen and rates of assimilation have fallen.
Note that the 2000 cohort has a better entry level gap compared to its predecessors.
These features are also exhibited by old Asian and non-Asian cohorts. The unique
feature of each new Asian wage profile is the lack of convergence or rise in the wage
gap between the second and third decade of stay. The hump-shape of the new Asian
wage profile is more prominent in the controlled profile.17 Old Asian and non-Asian
immigrants bridge the wage gap throughout their working life. In fact, the Chinese
and Filipinos earn more than natives after the first decade.18
Table 1 compares different immigrant groups and natives on observable characteristics, using the 1990 census. Note that immigrants are not distinguished by
duration of stay in the U.S. Old Asians are observationally better than natives and
non-Asian immigrants. It is clear that the three new Asian countries are quite dissimilar. Indians have the best observable characteristics. Vietnamese immigrants are
the least skilled and earn the lowest wages compared to other groups in the economy. Koreans can be considered to be in the “middle”. The fact that the wage gap
profilles for these three countries follow a similar pattern, despite the differences in
characteristics, is even more puzzling. For estimations in the rest of the chapter, the
three new Asian countries will be grouped together.
The curvature differences persist in residual immigrant-native wage gaps as well
(Figure 5).Residuals are obtained from a pooled wage equation (2.2) for the entire
economy for each census year. These residuals are regressed on origin dummies to ob17
There are curvature differences between the raw and residual profiles of every Asian country in
the second and third decades. The age structures of a cohort and the native population are different
after the first decade. The cohort is older than the native population which explains the differences
in slopes of raw and residual profiles. This paper assumes immigrants compete with all working age
natives, not just individuals in their age bracket. If natives also age at the same rate as the cohort,
raw and controlled profiles have similar slopes i.e. the increase in the controlled gap after the second
decade is not significant for new Asians. Old Asians have a significant improvement. The difference
in curvature persists.
18
Indian cohorts also have higher wages compared to natives after the first decade of stay.
14
tain the immigrant-native residual gap. Wage equation (2.2) includes more observable
controls than equation (2.1).19
log wit = αt + γt Xit + eit
Xi,t =
(2)
observable controls
t = census year, i = individual
The shape of the wage gap profiles is robust to occupation-specific differences.
If new Asians choose to work in occupations where the experience profile is more
concave than the experience profiles of occupations chosen by natives or old Asians,
then each new Asian cohort will have a hump-shaped wage gap profile versus natives,
irrespective of changes in cohort size. Adding a quadratic term in occupation and
experience interactions, I find that the hump-shaped residual wage profile persists.20
On the other hand, it may be hypothesized that the experience profiles of new Asians
are more concave than natives in the same occupations if experience is a proxy for
learning English or acclimatizing to U.S. culture and returns to learning fade out after
certain years of stay in the U.S. This explanation for the wage profiles is not likely
given the vast differences in English language skills within the new Asian countries.
For example, the Indian immigrants are more likely to know English at a level similar
to Filipinos, rather than other new Asians.21 Yet, the Indian wage profile resembles
other new Asians and not Filipinos.
19
Controls in (2.2) include years of education, a dummy for an advanced degree, a cubic in experience, interactions between 5-year experience bins and four broad levels of education (high- school
dropout, high-school graduate, some college and college graduate), gender, marital status, family
size, a dummy for being in a small metro, a dummy for being in a small occupation, a dummy for
being a full-time worker, a dummy for being in school, dummies for ethnicities and their interactions
with school category dummies.
20
Occupations are defined at a two-digit level.
21
English is an official language in India and Philippines.
15
Literature on immigration is concerned with the change in quality of new cohorts.
Table 2 shows the changes in observable characteristics of new and old Asian immigrants across successive cohorts. As a basis for comparison, the changes in observable
quality of white natives and all immigrants is also presented. Both the native and
immigrant labor forces increase their years of education and have a lower male bias,
though natives remain better educated. Also as expected, entering immigrants are
younger and less educated than established immigrants. Quality of cohorts from new
Asia deteriorates between 1970 to 1990, which is not the case for recent cohorts of
old Asian countries. The 2000 cohort from all Asian countries is more skilled owing
to the preferential immigration policy towards high-skill labor in the 1990s. While
poorer quality of unobservables might explain the worsening residual wage profiles
for successive cohorts from new Asian countries, it does not explain the hump-shaped
profile of previous cohorts which, in some sense were “better”.
Commensurate with the changes in observable quality, there are changes in occupation structure. New Asians moved away from high-skill occupations and towards
low-skill occupations between 1970 to 1990. Table 3 shows the occupational distribution for natives, all immigrants, old and new Asian country immigrants and their
respective entrant and established immigrants. For all years, the bulk of natives work
in middle-skill occupations, whereas immigrants work in high or low skill.22 Between
1970 to 1990, natives and immigrants (established and entrant), except new Asians,
have increased their numbers in high-skill occupations. In 2000, there is a sharp
increase in the representation of Asian entrants in high-skill occupations.
An obvious concern with the cross-sectional analysis of wage-gap profiles of quasicohorts is that it cannot deal with out-migration. Borjas and Bratsberg (1996) show
that “poor performers” in the U.S. labor market are likely to return to their home
22
Card (2009) finds that immigrants cluster in the lowest or highest levels of educational attainment, whereas natives fall in the “middle”.
16
country. If stayers are a selected group of high-skilled people, then cross-sectional
assimilation profiles have an upward bias. Lubotsky (2007) uses longitudinal earning
histories of immigrants to show that assimilation profiles of immigrants are lower and
flatter than estimated by cross-sectional data. Stayer selection can also differ across
cohorts.23 If return migration explains the rising wage gap of new Asians after the
second decade, it implies that “better” immigrants are returning home to Asia. I track
the education attainment and occupation distribution of the quasi-cohorts to indirectly assess the quality of the stayers. 70% of new Asian entrants of the 1970 cohort
have a college degree and 65% work in high-skill occupations. These proportions are
relatively stable even as the cohort ages. For all other cohorts from new and old Asia,
there is an increase in the proportion of college-educated and high-skilled occupation
workers as the cohort ages.24 Data from the Immigration and Naturalization Services
has shown that out-migration is common among source-countries that are rich and
developed or that are geographically close.25 Asian emigration (except Japanese) is
less common than European or Latin American. Also emigration is more likely in the
first or second decade of stay.
3.3
Location and occupation choice of Asian immigrants
Given the limited role of selection in explaining the curvature of the new Asian
wage gap profiles, the paper will focus on an “impact of immigration” explanation.
This section documents residential and occupation choices of new Asians in order to
motivate this argument. Persistence of country-specific preferred metropolitan areas
and occupations in combination with large inflows of entrant immigrants is likely to
23
One-third immigrants are found to return to their home country.
24
25-30% of the entering cohort works in high-skill and 40-45% in low-skill. The proportions
reverse after the cohort has lived in the country for 20+ years.
25
See Borjas & Bratsberg (1996) and Jasso & Rosenzweig (1990).
17
have an impact on wages of competing Asian immigrants. Competition is less likely
if entrants choose different occupations or locations from their predecessors or are
spread over many occupations. Some studies on immigrant enclaves focus on Arab
immigrants in Detroit (Abraham & Shryrock (2000)), Chinese immigrants in San
Francisco (Wang (2007)) and Mexican immigrants in Los Angeles and Chicago. Patel
and Vella (2007) have extended this idea of spatial concentration to occupational
concentration showing that in 2000 almost 25% of hairdressers in Houston-Brazoria
are Vietnamese and 25% food processing workers in Fort Lauderdale are Haitian
versus under 5% in 1980. However the economic and social outcomes of different
groups of immigrants living the same metropolitan need not be the same.26
Table 3 has already shown that both entrants and established new Asians have
moved away from high-skill occupations and towards middle and low skill occupations
between 1970-1990. Occupational specialization occurs at a more disaggregated level.
Table 4 shows the most preferred metropolitan and three-digit occupation of established and entrant immigrants from Korea and China for 1970-2000. The fraction of
the relevant group in the occupation or metropolitan is shown in parentheses. Koreans
irrespective of duration of stay, choose to live in the same metropolitan (Los Angeles)
in larger percentages. The Chinese spread out to newer preferred locations. The
other difference is seen in terms of choice of occupation - Koreans in 1970 worked in
high-skill occupations, but move to sales jobs in increasing numbers in latter decades.
Chinese immigrants used to work as cooks but established immigrants are less and
less likely to continue working in this low-skill occupation. Also the proportions of
natives living in Los Angeles or working sales supervisors are much smaller than the
Korean proportions. This simple example suggests competition within Koreans in26
Portes and MacLeod (1996) find that education outcomes are much worse for second generation
children born to Haitian immigrants compared to Cuban immigrants in South Florida. Much of this
variation can be explained by the socio-economic conditions and length of stay of the parents.
18
creases between 1970 and 2000, which is not necessarily the case for Chinese. The
Korean trends also apply to other new Asian countries.2728
Figure 6 presents further evidence of the spatial clustering phenomenon of new
Asians. I chose one of the new Asian countries - Asia. The horizontal axis shows
the proportion of Koreans, as a fraction of all immigrants in the year 1980 living
in metropolitan m. The vertical axis shows the fraction of Koreans among all new
entrants who entered USA between 1990-2000 and live in metropolitan m. The figure
shows the metropolitan areas where Koreans clustered in 1980 continue to be the
preferred locations for Korean entrants in 2000. The R-squared of this scatter plot is
0.56.29
4
Theoretical Framework: Production Function and
Wages
Rapidly increasing in ows of entrants can have a negative impact on wages of
previous immigrants in an environment where entrants and established immigrants
are better substitutes than immigrants and natives within an occupation, and occupations are not substitutable. The effect of rising supply of immigrants is studied
through relative demand functions.30 The general equilibrium production functions
27
As of 2000, 11% of Indian immigrants live in New York - New Jersey and 12% work in computer software development. 15% of Vietnamese immigrants live in Los Angeles-Long Beach-Orange
County and 10-11% each work as electrical equipment assemblers and hairdressers.
28
Mandorff (2007) shows that complementarity between social interactions and production in
certain occupations create an absolute advantage for the ethnic group, which leads to ethnic specialization in that occupation. In a dynamic setting, social interactions strengthen the initial group
differences and result in long-run occupation specialization.
29
Card (2009) reports an average correlation coefficient across all source countries for the 125 most
populated metros to be 0.36. Clustering is less common among Indian and Chinese immigrants.
30
Per capita supply is considered to be elastic though local supplies can vary.
19
commonly used in literature impose a separability condition between capital and
labor. Ottaviano & Peri (2006) find that capital adjusts within a short period to immigration flows. If capital is elastically supplied at a fixed interest rate, then a CES
production function is well-suited to estimating demand for various kinds of labor
and predicting the response to relative supplies and productivities of other groups.
Following Borjas (2003), I build a nested CES production function where different
types of labor are combined to produce output. Labor is distinguished on the basis of
broad occupation categories and nested within each category natives and immigrants
are considered imperfect substitutes. Entrant immigrants and established immigrants
are also imperfect substitutes within the occupation category. The rationale behind
using occupation categories rather than education or experience categories, as is popular in the impact literature, is two-fold. There is persistence in preferred occupation
among successive cohorts of immigrants of the same source countries and these preferences operate at a metropolitan level. As discussed previously, a large inflow into
an occupational niche will affect a larger proportion of own-country workers rather
than natives. Secondly, the education and experience obtained in a foreign country
that an immigrant “brings” to the U.S. are often not comparable in quality to similar
levels of attainment in the U.S. Entrants are seen to downgrade and accept jobs below
their skill level. A CES model that differentiates between labor on the basis of education or experience cells would assume direct competition between immigrants and
natives within each cell. Substitutability between natives and immigrants is likely to
be higher within an occupation rather than an education/experience cell.
Output Y in the economy is produced in three broad occupation categories: high,
middle and low. Output is also the numeraire good. Output can change across
time, the subscript t is suppressed for convenience. No is the total labor supply in
20
occupation category o and o = H, M, L.
ρ
Y = f (NH , NM , NL ) = [θH NHρ + θM NM
+ θL NLρ ]1/ρ
(3)
σ−1
and σ = elasticity of substitution across two categories. θo s are
σ
occupation-specific productivity weights which can vary over time.
where ρ =
In the specification of the production function, I assume a common elasticity of
substitution between occupations. When estimating the elasticity, I will calculate
substitutability of the high or low occupation with respect to the middle occupation.
The middle sector is chosen as the base sector since it is the largest employer in U.S.
but immigrants concentrate in high and low skill. It is important to see the ease with
which a new immigrant could find employment in the biggest sector in the economy.
The inverse demand function for occupation category o :
wo =
∂Y
= θo Noρ−1 Y 1−ρ
∂No
(4)
The expression for relative log wages of occupations o and j shows that balanced
immigration with flexible capital would leave this relative wage ratio unaffected (provided productivity weights do not change over time):
log
wo
wj
= log
θo
θj
1
− log
σ
No
Nj
(5)
The above relative wage equation assumes that immigrants and natives in the same
occupation are perfect substitutes. Authors like Borjas (2003), Ottaviano and Peri
(2006), Card (2009) have argued against assuming immigrants and natives within the
same education or experience group are perfect substitutes.31 Foreign and U.S. educa31
The usual rationale for treating immigrants and natives within the same education-experience
21
tion may impart different skills even though immigrants and natives find employment
in the same broad occupation category.32 Extending the argument to occupations,
natives (X) and immigrants (I) can be combined in occupation o by the elasticity
of substitution σoXI . Differences in knowledge of English or U.S. markets and consumer preferences introduces imperfect substitutability. The elasticity of substitution
between natives and immigrants is permitted to vary by occupation category.33
Then for each occupation category o :
No = [αXo Xoγo + αIo Ioγo ]1/γo
where γo =
(6)
σoXI − 1
and σoXI = elasticity of substitution b/w immigrants & natives
σoXI
Xo = native labor force in o; Io = immigrant labor force in o
The αs are productivity weights for natives and immigrants and can vary across
sectors and census years.
The log-linear wage paid to an immigrant in occupation o is:
log wIo =
∂Y
∂Io
= log θo + log αIo +
1
1
1
1
log Y − ( − ) log No −
log Io
σ
σ σo
σo
(7)
The native wage in occupation o is similarly derived. The relative native-immigrant
wage differential within the occupation is given by:
group as imperfect substitutes is that occupations chosen differ by country of origin (Card 2009,
Ottaviano and Peri 2006).
32
Peri and Sparber (2008) show that occupation choices differ between immigrants and natives
with graduate degrees. Immigrants specialize in occupations requiring quantitative and analytical
skills. Their native counterparts opt for occupations requiring interactive and communication skills.
33
I can also assume the only labor inputs in each occupation are native or Asian (old or new) to
calculate the substitutability between natives and Asians, and within Asian groups.
22
log wXo − log wIo = log(
αIo
1
Io
)−
log
αXo
σoXI
Xo
(8)
Equation (2.8) assumes established (S) and entrant (E) immigrants are perfect
substitutes. There is reason to believe that immigrants with different durations of stay
will also differ in their unobservable U.S. labor market experience and assimilation,
especially if learning occurs over the working-life of an immigrant. Recent cohorts
might also differ in ability. Finally, as immigrants from a certain country build their
niches in the local market, more and more entrants from their country may join this
niche even though they might not be as well-suited as their predecessors. Conversely,
a large network lowers information and search costs and new cohorts may be as wellsuited to the occupations, in which case the substitutability between entrants and
established will be high.34 Allowing σFo to be the elasticity of substitution between
immigrants in occupation o, I add another nest to the production function. Immigrant
labor force as defined below in equation (2.9) will be substituted in equation (2.8) to
derive the correct relative native-immigrant wage gap in occupation o.
Io = [βEo Eoηo + βSo Soηo ]1/ηo
where ηo =
(9)
σF o − 1
and σF i = elasticity of substitution between immigrants in o
σF o
So = established immigrants in occupation o; Eo = entrant immigrants
The βs are productivity weights for entrant and established immigrants and can vary
across sectors and census year.
34
The idea of joining occupations popularized by previous immigrants comes from network theory.
Connections in immigrant communities constitute a source of social capital (Waldinger (1997)).
Having a large group of own people reduces search costs and improves the quality of employment.
23
The wage of an established immigrant in occupation o is:
log wSo
1
1
1
1
1
1
log Y − ( −
) log No − (
−
) log Io −
log So
σ
σ σoXI
σoXI
σFo
σFo
1
No
1
Io
1
So
= log θo + log αIo + log βSo − log( ) −
log( ) −
log( )
(10)
σ
Y
σo
No
σFo
Io
= log(θo αβSo ) +
Equation (2.10) demonstrates the way in which a large inflow of new immigrants
could depress wages of the established immigrants, leading to the hump-shape of the
1
1
1
1
wage profiles. As long as ( >
) and (
>
) wages of immigrants will
σ
σoXI
σoXI
σFo
decrease. The maximum decrease is seen in the limiting case of perfect substitution
1
≈ 0.An increase in Eo causes No and Io to increase. If the chain of inequality
σFo
holds, then log wSo is decreasing in Eo .The total impact of immigration on the wages
of established immigrants is a combination of scale and substitution effects.
The wage of an entrant immigrant in occupation o can be similarly derived:
log wEo = log θo + log αIo + log βEo −
1
No
1
Io
1
Eo
log( ) −
log( ) −
log( ) (11)
σ
Y
σo
No
σFo
Io
The relative within-immigrant wage gap in occupation o is given by:
log wEo − log wSo = log(
βEo
1
Eo
)−
log( )
βSo
σFo
So
(12)
In the limiting case of perfect substitutability between immigrants the relative wage
gap will depend only on the ratio of productivity weights. Even a modest level of σFo ,
as long as it is finite, will lead to a relatively higher fall in entrant immigrant wages
compared to established immigrants.
The next section will describe the identification and estimation strategies for the
24
various elasticities of substitution.
5
Identification and Estimation Strategy
In order the explain the shape of the new Asian wage gap profiles using the model
outlined in the previous section, it is necessary to calculate three sets of elasticities :
(a) between occupation categories, (b) between natives and immigrants in an occupation and (c) between established and entrant immigrants in an occupation category.
The general form of a relative demand function that allows for identification of the
elasticity of substitution between two groups A and B is:
log wA − log wB = log(
λA
1
NA
)−
log(
)
λB
σA,B
NB
where log wA − log wB is the difference in log wages of groups A and B, log(
(13)
λA
)
λB
NA
) is the log of relative labor supply of the
NB
groups. The coefficient on relative labor supply is interpretable as the negative of the
is their relative productivity and log(
inverse elasticity of substitution between groups A and B. Note that A and B can be
occupations or groups within occupations.
I exploit the cross-metropolitan variation in skill-based occupation distribution
and concentration of different groups of immigrants to estimate relative wage equations. Figure 7 shows the proportion of high-skill workers in the labor force of
the top 200 metropolitan versus the share of Asian immigrants. The variability in
high-skill occupation distribution is high. The variability in Asian share of the labor
force across metropolitan areas is lower since Asian immigrants tend to concentrate
in metropolitan areas made popular by their predecessors. The scatter of points has
a R2 of 0.22 implying that areas with higher Asian populations also have a larger
high-skill occupation sector.
25
The relative demand equation I actually estimate to obtain estimates of the elasticity of substitution between groups A and B is shown in equation (2.14):
r̄Am − r̄Bm = c + µA,B (
NA
)m + βXm + m
NB
(14)
where r̄Am and r̄Bm are mean residuals for group A and B respectively in metropoliNA
tan m. (
)m is the relative labor supply of the two groups. Xm are metropolitan
NB
1
controls. The coefficient of interest is µA,B = −
which is identified off the regional
σA,B
variation in relative labor supplies.
There are differences between equation (2.14) which is based on metropolitan
aggregates and wage equation (2.13) which uses individual observations. For one, I
use difference in metropolitan mean residual wage instead of the gap in real log wages.
Using equation (2.14) will imply that relative labor supplies do not affect returns to
observable skills like education and experience; only the residual wage difference.
Wage inequality between skill groups is explained less by observable characteristics
and more by residual wage dispersion among workers with the same skills (Lemieux
(2008)). Card (2009) also shows that residual wage inequality across metropolitan
areas is strongly correlated with immigrant concentrations and this affects immigrant
inequality more than natives. The national residual wage gap between groups A and B
is the weighted aggregate of all the metropolitan wage gaps. I have a choice of weights
- I can use total metropolitan labor force population or metropolitan population of
group A or B. All these weights value groups A and B equally in each metropolitan. A
national estimate derived from weighted metropolitan gaps will differ from a national
wage gap estimated from individual data. However, the trends in wage gap profiles
of new and old Asian profiles seen in previous sections are carried over when I look at
metropolitan aggregate residual wage gaps. Finally, the constant c in equation (2.14)
26
is no longer the log of ratio of productivity weights.35
The greater concern with regional studies is one of endogeneity in relative labor
supplies. The validity of spatial studies has been questioned and many authors favor
aggregate time series estimations (Borjas, Freeman and Katz (1997)). In the absence of restrictions on mobility, labor supplies can change as a response to relative
wages. The fact that local market conditions can influence both relative wages and
supplies leads to a simultaneity bias. Also temporary local market shocks can make
an occupation more lucrative for immigrants by lowering entry barriers.36
In the presence of endogeneity, OLS results suffer from a downward bias and hence
the need to instrument for relative labor supplies arises. The instrument is based on
the “clustering” tendencies of immigrants (Card (2001, 2009)). If residential and occupational distributions are fairly stable across time for immigrants from each source
country, one can predict the inflow of immigrants from each country into a metropolitan area and occupation on the basis of patterns exhibited by prior immigrants.37
The inflow of entrants and the stock of previous immigrants are distinguished on
the basis of education categories - less than high school, high-school graduate, some
college and college graduate.38 The final predicted occupation-specific inflow into a
metropolitan area is a composite across education groups from a source country and
also across source countries.
Suppose there are a total of Ie,n,t−10 immigrants in education category e from
35
\
\
[
c = log(ratio of productivity weights) − (log
wA − log
wB ), where log
w is predicted log wage.
36
It can be argued that native flows into a metropolitan area may also respond to the changes
in immigrant share of the local labor force. Card and DiNardo (2000) find no evidence of selective
out-migration by natives differentiated by skill groups.
37
38
Occupations are still defined as three broad categories.
The correlation between education and type of occupation is strong, and has been discussed
earlier. Recent cohorts might seek employment in occupations lower than their skill levels and thus
the correlation might fall. But it is still more likely that a college graduate will work in a high
skill occupation (correlation of 0.55 - 0.6) and a high-school dropout will be in low skill occupations
(correlation of 0.4 to 0.45).
27
source country n in period t − 10 (say, 1980) and of these immigrants Ie,o,m,n,t−10
live in metropolitan m and work in occupation o. Then, the fraction of immigrants
from country n with education e in the metropolitan m− occupation o cell is given
Ie,o,m,n,t−10
. The total flow of entrant immigrants from country n
by δe,o,m,n,t−10 =
Ie,n,t−10
in the next decade (in this case 1980-1990 or 1990-2000) is given by En,t . This flow
can also be distinguished on the basis of education (Ee,n,t ) levels. The residential and
occupation distribution of country n entrants in an education category are predicted
by the location and occupation choices of their predecessors with the same level of
education. Therefore, the simple clustering model would place δe,o,m,n,t−10 ×Ee,n,t new
immigrants from n with education e in metropolitan m and occupation o. Summing
across all education categories, the total occupation and metropolitan specific inflow
of new immigrants from a single source country n in period t is given by:
E\
o,m,n,t =
X Ie,o,m,n,t−10
X
(
(δe,o,m,n,t−10 × Ee,n,t ) =
× Ee,n,t )
I
e,n,t−10
e
e
(15)
This variable is interpretable as the weighted aggregate of education specific inflows from a source country n where the weights depend on the share of previous
immigrants of similar education levels in occupation o and metropolitan m in t − 10.
Furthermore, summing across all source countries n, the predicted inflow of all
entrants in occupation category o as a fraction of the total population of the metropolitan Pm,t is given by:
P
Eo,m,t =
\
n Eo,m,n,t
=
Pm,t
P P Ie,o,m,n,t−10
× Ee,n,t )
n
e(
Ie,n,t−10
Pm,t
(16)
The variable is once again interpretable as the weighted average of inflows from
each source country, where weights depend on the share of the country’s previous
immigrants in metropolitan m and occupation o in t − 10.
28
Following Card (2009) again, I use estimates for Ee,n,t derived from the skill shares
of the national pool of immigrants from each country who arrived in the last decade.
The national inflow rates are distinguished on the basis of education which was
acquired in the home country and hence are exogenous to conditions in a specific
metropolitan area. Thus the predicted inflows should also be independent of local labor conditions. The log of inflows is used to instrument for occupation labor supplies
and native-immigrant labor supplies. Since settlement patterns of t − 10 are used to
predict current inflow rates, the instrument can deal with a temporary labor market
shock that affects relative labor supplies in period t.39
It is known that location and occupation choice of immigrants is also not random.
While the tendency of entrant immigrants to locate in areas and work in occupations
of their predecessors is explained using network theory, there is a concern that the
initial labor market conditions that welcomed the first cohorts could still persist.40
For example, the shortage of nurses in the 1960s in the larger metropolitans of USA
led to an inflow of Filipino nurses. Nursing continues to be the dominant occupation
among Filipino immigrants. The nursing curricula in Philippines and USA have many
similarities which persist over time. Similarly Honolulu is a popular residential choice
for Filipinos. The first Filipinos worked in the sugar plantations of Hawaii. Even
though the number of Filipino farm workers has reduced, Honolulu houses 4-5% of the
Filipino population and only 0.2% of the overall U.S. population. In such a scenario,
the instrument will suffer from similar problems as the relative immigrant labor supply
variable. This is particularly true when I compute the elasticities between entrant
immigrants and their predecessors of narrow Asian groups since the decision of entrant
39
40
The shocks are assumed to be i.i.d.
Short-term benefits in wages (Edin et. al., 2003) and employment (Munshi 2003, Beaman 2007)
accrue to entrants who locate in areas populated by their predecessors or work in occupations popular
among previous entrants (Patel and Vella 2007).
29
immigrants to move into specific metropolitans and occupations may be based on the
wages of their predecessors.
To deal with persistent labor market conditions, researchers often estimate a
difference-in-difference equation across decades. The instrument for the change in
labor supply between periods is based on patterns observed in t − 20:
(r̄Am − r̄Bm )t − (r̄Am − r̄Bm )t−10 = c + µA,B ∆(
NA
)m,t/t−10 + β∆Xm,t/t−10 + m (17)
NB
In this paper, I use the settlement patterns of 1980 to predict inflows in 1990. The
model estimates from 1990 will be used in latter sections to predict the portion of
the wage gap in 2000 that can be attributed to competition between substitutes. An
equation like (2.17) needs three time periods. Additionally, if estimates are used for
next decade’s predictions, I will need spatial information from Censuses 1970, 1980,
1990 and 2000. Settlement patterns from Census 1970 cannot predict inflow rates in
latter decades since metropolitan demarcations are not consistent between 1970 and
latter censuses. Also the 1970 Census is a 1% sample, many small source countries
blocks will be missed in smaller metropolitan areas and the instrument will have
measurement error. To deal with persistent metropolitan shocks, I will include lags
of the dependent and independent variable in Xm , as well as lagged labor market
characteristics. The strength of the instrument while estimating each set of elasticity
parameters will be discussed with the results in section 2.7.
6
Data: The U.S. Decennial Census
A commonly used source of data for immigration-related studies is the Census. It
is representative of both native and foreign-born populations. The Census provides
a large sample of small ethnic groups, even when differentiated by cohort. To derive
30
the cohort wage gap profiles, I use the IPUMS 1% sample for 1970, 5% samples for
1980 to 2000 and ACS 2007. To estimate the parameters of the production function I
only use Censuses 1980 to 2000.41 An immigrant is defined as a person born outside
the U.S.42 The Census provides detailed information on the country of birth, year
of arrival and duration of stay.43 An entrant is an immigrant who entered U.S. in
the last decade and has lived in the U.S. for 0 to 10 years. Established immigrants
have been in the U.S. for more than 10 years. As mentioned earlier, immigrants from
India, Korea and Vietnam are “new Asian immigrants”. The first cohort from India
and Korea is assumed to have entered between 1965-1970 after the Immigration and
Nationality Act Amendments of 1965. The first Vietnamese cohort enters USA in
1975-1980 after the Vietnam War. China and Philippines are old Asian countries that
have been sending immigrants to USA since the late 19th/early 20th century.
The sample includes all labor-force participants between the ages of 25 to 65 who
report non-zero wages in the previous year. I also exclude the top 1.5% and bottom
1.5% of the wage distribution. Many immigrants come to USA for the purpose of
higher education, this is specially true for Asians. Hence their work hours will be
low. I have omitted those still in school. Military personnel and individuals who do
not have a clearly defined three-digit occupation are dropped from the sample. The
widely accepted practice in literature is to calculate wage outcomes only for male
workers since selection concerns are different for women. However I include women
in my sample since the labor force from old Asian countries is more female and the
41
The 1% 1970 IPUMS sample and the 2007 ACS are used to estimate cohort wage gap profiles
but not to calculate elasticities. The 1970 1% sample has very new Asian immigrants. Also it is
difficult to match metropolitan boundaries in 1970 with the next Censuses.
42
People born in U.S. territories like Puerto Rico, Guam, U.S.Virgin Islands are considered immigrants.
43
The 1970-1990 Censuses break up year of arrival and duration of stay into categories. The 2000
Census and ACS 2007 provide actual year of arrival and years of stay.
31
labor force from new Asian countries, except India, is also more balanced than the
native labor force.44
The Census also has detailed information on metropolitan area of stay and the
three-digit occupation an individual works in. The metropolitan area variable needs
adjustments to make it comparable across Censuses.4546 This is important since I
am using the fraction of country n immigrants who live in metropolitan m and work
in occupation o in year t − 10 to predict the inflow from n in period t to the same
metropolitan and occupation. I can also observe the local occupation niches that old
Asian countries have established and that new Asian countries are building. For each
Census year, I can quantify the inflow of entrants into an occupation category. The
sum of predicted entrant immigrant inflows across all 43 source countries within a
metropolitan m will be used as an instrumental variable to purge relative supplies of
labor in a metropolitan area of endogenous labor market effects.47
The broad occupation categories by which labor is differentiated, are closely related to education attainment. All occupations classified as Managerial, Professional
and Technical are high-skill occupations where workers have a mean education of 15.3
years. Sales, administration and crafts are middle-skill occupations and most workers
are high-school graduates with some college education, on average 13 years of schooling. Service workers, both household and non-household, operators and transport
44
Occupations of specialization for Vietnamese (hairdressing) and Filipino (Registered Nurses)
immigrants are female-intensive.
45
For example: Anaheim-Santa Ana-Garden Grove, California is coded as a separate metropolitan
in 1970-1990 and Orange Country, CA shows up as a metropolitan area only in 2000 & ACS 2007. I
have grouped them under Los-Angeles-Long Beach. Any metropolitan areas that cannot be linked
due to boundary changes are usually small with few immigrants.
46
Metropolitan boundaries are not comparable between the Census 1970 and latter censuses. This
necessitates the exclusion of the Census 1970 while estimating substitution parameters.
47
I combine countries into blocks, instead of using individual countries. Since we use a 5% sample
of the U.S. population, people from countries with a small presence in the U.S. might be missed and
the predicted inflow will be zero based on previous year immigrant share. I have 43 country blocks.
32
workers are low-skill workers with a mean education of 11.5 years.
There is concern that the occupation categories might be too broad and I make
the implicit assumption that all 3-digit occupations within the category are perfect
substitutes. If three-digit occupations are imperfect substitutes, a large inflow of
new immigrants in the three-digit occupation will have a negative effect on wages
of natives and immigrants only in that occupation. However as long as occupation
substitutability is less than native-immigrant substitutability, which in turn is less
than within immigrant substitutability, the results hold. I have calculated elasticities
between the 10 narrower categories mentioned above. Within each broad category,
the sub-occupations that make up the category have high degrees of substitutability; the estimates of inverse elasticity are often positive and insignificant even after
instrumenting.4849 In some specifications of the relative demand functions, I create
total labor supplies for each category as a sum of the supply in each 3-digit occupation weighted by its share in the category. Elasticity parameters are similar whether
unweighted or weighted labor supply by all individuals in the category are used.
7
Results
7.1
Substitutability among established and entrant immigrants
This section presents the first set of parameter estimates for the lowest level
of disaggregation. The degree to which established and entrant immigrants can be
48
Technical occupations have some imperfect substitutability vis-a-vis other categories in high-skill
but this shows up in 2000 and can be attributed to the IT boom.
49
Kambourov and Manovskii (2008) report high occupation mobility at the one-digit, two-digit
and three-digit level. However mobility is increasing in the level of disaggregation. The authors also
show that mobility occurs in all education and experience groups.
33
substitutes for each other determines the degree of competition within immigrants.
Estimates from this section will be used to construct total immigrant labor supply
(equation 2.9) which are essential for calculating substitution parameters in the higher
nests. Substitutability within immigrants need not be perfect since established immigrants have spent a longer time assimilating in the U.S., the effects of which are
not entirely captured by returns to observable experience. Additionally there can
be quality changes across cohorts. Using data from the 1990 and 1980 Censuses, I
estimate the following equation for each occupation category separately:
r̄Em,o − r̄Sm,o = c + µSMo log(
NEm,o
) + βZm + m
NEm,o
(18)
where r̄Em,o is the mean residual wage for entrant immigrants in metropolitan m and
occupation category o, r̄Sm,o is the mean residual wage for established immigrants
in metropolitan m in occupation category o.50 NEm and NSm are their respective
labor supplies to metropolitan m measured by total annual hours worked, Zm are
metropolitan controls. The parameter of interest is µSMo which is the negative inverse
elasticity of substitution between established and entrant immigrants i.e. µSMo = 1
.
σF o
The effect of metropolitan factors on labor supplies is worrisome in estimating
equations such as (2.18). Entrant labor supplies might respond to current wages of the
established immigrants. Temporary labor market shocks may make a metropolitan
more lucrative for immigrants to locate in. I instrument for relative wage supplies
using the log of the total predicted flow of entrants from 1980 to 1990 in occupation
o, as seen in equation (2.16). The instrument is based on country-specific occupation
and settlement patterns as seen in the 1980 Census. However, initial metropolitan
50
The residuals are obtained from log wage equations for the entire native and immigrant labor
force working in an occupation category. See section 3.2 for controls used in the wage equation.
34
conditions that attracted the immigrants in 1980 might persist over time and the IV
estimates will continue to have some of the biases of OLS.
Table 5 presents estimates for various specifications of equation (2.18). The
coefficients on the relative labor supply suggests that entrant and established immigrants are more imperfect substitutes in high and middle skill, but close substitutes in
low-skill occupations. This result is expected since skilled occupations require more
experience, as well as unobservable quality which researchers believe has been declining across cohorts (Borjas (1995)). IV estimates are larger than OLS estimates;
hence the instrument purges labor supplies of some endogeneity. The first stage
t-statistics on the instrument are reasonable in the range 9-12. To control for persistent metropolitan characteristics I add lagged relative labor supply of entrant and
established immigrants from 1980 and the lag of their residual wage difference from
1980. This will lower first stage t-statistics on the instrument. Note that OLS or IV
estimates with controls are smaller than estimates without controls.
I also estimate substitutability between entrants and established immigrants of
new Asia and old Asia separately. Endogeneity concerns for the IV are stronger since the first cohorts from new Asia enter in the late 1960s and 1970s and initial
labor local market conditions are likely to persist to 1990. The instrument proves to
be weaker when applied to narrow Asian categories and IV estimates are imprecise.51
Additionally, geographic and occupation clustering by country of origin also implies
NE
lower variability in ( m ) across metropolitan areas.52 Table 6 shows estimates
NSm
for µSMo from various specifications of equation (2.18) for new Asian and old Asian
51
The IV for Asian relative labor supplies excludes predicted inflows from the five Asian countries
which are part of new and old Asia.
52
The number of metropolitan areas used in estimations for all immigrants is bigger than the
number in the Asian immigrants table.
35
immigrants respectively.53 Nevertheless, it is seen that established and entrant immigrants from Asia are more substitutable in every occupation, especially in high-skill,
compared to other immigrants.
7.2
Substitutability among natives and immigrants
The next issue for understanding the impact of immigration is to determine the
degree to which natives and immigrants are substitutable within a broad occupation
category. Once again, cross-metropolitan comparisons are very useful since there
is wide geographic variation in immigrant populations. If natives and immigrants
are imperfect substitutes, metropolitan areas that house large immigrant populations
will also have lower immigrant wages. Using data from the 1980 and 1990 Censuses
I estimate the equation below for each occupation category i separately:
r̄Im,i − r̄Xm,i = c + µIXi log(
NIm
)i + βZm + m
NXm
(19)
r̄Im,i and r̄Xm,i are the mean residual wages for immigrants and natives respectively
in metropolitan m in occupation category i.54 NIm and NXm are their respective labor
supplies. NXm,i is measured by summing annual hours worked across all natives living
in metropolitan m and working in occupation i. NIm is calculated as per equation (2.9)
using the relevant occupation-specific elasticity of substitution between established
and entrant immigrants. I estimate equation (2.19) both assuming that entrant and
established immigrants are perfect substitutes, as well as assuming they are imperfect
substitutes.55 Finally Zm includes lagged metropolitan controls. The parameter of
53
The regressions weigh the observation for each metropolitan by its immigrant population.
54
Residuals are obtained from wage equations for the entire labor force in an occupation category.
55
The estimate of the elasticity of substitution σF between immigrants is noisy. When calculating
elasticity of substitution between immigrants and natives within the occupation, 100 different values
of σFi uniformly distributed over [d
σFi IV ± 2 * standard error] are used to calculate σi,XI . Standard
36
interest µIXi is the negative inverse elasticity of substitution between immigrants and
natives.
The concerns regarding the correlation between native-immigrant labor supplies
and metropolitan areas persist. Bigger metropolitan areas that house more immigrants than residents may also be favorable in terms of immigrant employment and
wages. OLS estimates may be downward biased. Once again I use predicted flows
of new immigrants defined by 1980 residential patterns of 43 country-specific groups.
As discussed in the previous subsection, initial settlement patterns may be contaminated by persistent metropolitan characteristics and the IV estimates might suffer
from similar endogeneity problems as the OLS estimates.
Tables 7 and 8 show the elasticity of substitution estimates between natives and
all immigrants and natives and Asians respectively, when established and entrant
immigrants are assumed to be perfect substitutes. Tables 9 and 10 impose a degree
of imperfect substitutability as obtained in the previous section. Results are very
similar, which is to be expected since the degree of substitution within immigrants is
close to perfect. The IV estimates are bigger than the OLS estimates and the firststage t-statistics are high - between 15-20. To deal with persistent local conditions, I
also add the 1980 lags of the independent and dependent variable. This increases the
coefficient on relative labor supply. Once additional controls are added, t-statistics on
the IV fall to 5. The instrument has less power when I consider the substitutability
of narrow Asian immigrant groups versus natives.
The degree of substitution between natives and immigrants in low-skill occupations is small yet finite. In the previous section, I found that within immigrants
substitution in this category is almost perfect.56 The estimated relative supply coerrors are also accordingly adjusted.
56
Federman, Harrington and Krynski (2006) show that in California, the increasing concentration of Vietnamese manicurists, which is a low-skill occupation reduces the number of new native
37
efficients are largest (in absolute value) in high-skill occupations but the degree of
imperfect substitution is even lower between entrants and established immigrants.
High-skill occupations have high returns on experience. Finally, adding a finite degree of imperfect substitutability between established and entrant immigrants has a
small effect on parameter estimates. The largest effect of immigration on foreign-born
workers relative to natives is seen within the high-skill sector.
Asian immigrants are least substitutable for natives in the high-skill and middleskill categories. They are also the poorest substitutes for natives compared to other
immigrant groups.57 Combined with close to perfect substitutability among new
Asian immigrants in high-skill categories and the fact that bulk of established Asian
immigrants were in this sector, an inflow of new immigrants would decrease wages of
new Asians across-the-board compared to natives. The substitutability of old Asians
vis-a-vis natives is either higher than or similar to other immigrants. A longer history
of stay in the USA can impart a greater degree of substitutability vis-a-vis the natives.
The estimated within-occupation elasticity estimates in high and middle occupations are close to Ottaviano and Peri’s (2006) national calculations (0.04 - 0.08).
This paper concludes immigrants and natives are good substitutes in low occupations
which is supported by Card’s (2009) claim that high-school “equivalent” natives and
immigrants are closer substitutes than college graduates.
7.3
Elasticity of Substitution between Occupations
The highest level of aggregation at which substitutability matters is between occupation categories. As long as occupations are less substitutable than workers within
occupations, an inflow has to be absorbed by the occupation itself. Then, the relamanicurists entering the profession.
57
It is likely that entrants from new Asia are imperfect substitutes for other immigrant groups.
38
tive wage of high-skill Asians working in cities with a sizable high-skill sector should
be lower. The same reasoning applies to Asians working in low-skill occupations in
metropolitan areas with a large low-skill sector. Once again, I use metropolitan variation in the occupation distribution to estimate the elasticity of substitution between
occupations. Elasticities are calculated with the middle sector as the base, since it
is the largest sector in the economy. To estimate σHM and σLM i.e. the elasticities
of substitution of high or low skill occupations versus middle skill occupations, the
following equations are estimated for i = H, L for the year 1990:
r̄im − r̄Mm = c + µiM log(
Ni
)m + βZm + m
NM
(20)
where r̄im is the mean residual wage for labor force participants in high or low skill
sector in metropolitan m, r̄Mm is the mean residual wage for labor force participants in
the middle skill sector in metropolitan m. Residuals are obtained from a pooled wage
regression for the entire labor force. Ni,m represents the relative labor supply into
occupation category i in metropolitan m and it is calculated as annual hours worked
by different groups of workers in i, using the appropriate within-group elasticities
of substitution calculated in previous sections to combine their hours worked for an
aggregate measure.58 µiM is interpretable as the negative inverse of the elasticity of
substitution between i and M. Zm are metropolitan controls which include lagged
log metropolitan size, college share and 1980 lags of the dependent and independent
variables.
Relative labor supplies and relative residual wages between occupations can be
affected by metropolitan factors. This biases the estimates of µiM . To instrument for
58
Entrant immigrants are considered to be 0.7 times as productive as established immigrants in
the high-skill sector, 0.8 times in middle skill and 0.9 times in the low skill sector. Total entrant
hours are multiplied by this scaling factor. The same constants are used to differentiate between
immigrant and native productivities in the occupations.
39
the relative labor supplies, I use the sum of predicted occupation-specific flows of new
immigrants into each metropolitan area (defined in equation (2.16)) as a proportion
Ni
)m should be instrumented by a ratio
of the metropolitan population. Ideally log(
NM
of predicted flows to i and M.59 The ratio is a reasonable instrument for the relative
labor supplies between low and middle, but has low predictive power as an instrument
for the relative labor supply into high occupations. The sizes of high and middle
sector are comparable in terms of real metropolitan labor supply or the predicted
inflow of entrants, this leads to lower variability in their ratio.60 Instead I use total
predicted flow of entrants into the high occupation to instrument for relative labor
supplies. This instrument has a higher R2 and t-statistics in the first stage regressions.
Estimations of different versions of (2.20) are shown in table 11.
The OLS estimates of elasticity between high and middle occupations are very
small and lack precision. In order to control for persistent metropolitan characteristics, I also add lagged values of the dependent and the independent to the regressions.
Using the instrument and adding metropolitan lag controls increases the point elasticity estimates and makes them more precise. The coefficient on lagged residual wage
difference is between 0.4-0.6, pointing to the presence of persistent metropolitan characteristics affecting relative demand. Compared to previous sections, the instrument
is weaker when used for occupational labor supply. The first stage t-statistics are
around 4. The point estimates for the inverse elasticity of substitution between high
and middle skill occupations ranges between [0.25,0.35].
The OLS estimates of the elasticity of substitution between low and middle skill
occupations is a high positive number. Dahl (2002) finds differential migration responses across education groups. Middle-skill workers who have some college edu59
60
Card (2009) uses the ratio of predicted flows as instrument.
If low skill is the base occupation instead of middle skill, the predicted ratios can be used as
instruments since low-skill sectors are usually smaller than the high or middle sector.
40
cation are more likely to respond to local wages compared to low-skill workers who
at most have a high-school degree. I get a negative elasticity using the instrument
only upon addition of metropolitan controls. The inverse elasticity of substitution
between middle and low skill lies between [0.07,0.18].
61
Even though the instrument has less power when applied to relative occupational
labor supply and IV estimates of elasticity are imprecise, the direction of endogeneity
implies that occupations should be even less substitutable. The estimates presented
in this section in conjunction with parameter estimates of previous sections clearly
indicate a large inflow of new Asian immigrants into a country-specific preferred
occupation will be absorbed within the occupation and disproportionately affect new
Asian immigrants rather than natives.
Finally, I compare the findings in this section to previous estimates in the literature. Elasticities of substitution are usually calculated between skills based on
education and experience levels. Literature in the early 1990s finds an inverse elasticity of substitution between high school and college graduates of around 0.7. Due
to a sluggish pace of skill-biased technological change in the 1990s, estimates of inverse elasticity after the 1990s are smaller (Katz & Goldin (2008)). Ottaviano & Peri
present national estimates of 0.2 - 0.3 for cross-experience elasticities and estimates of
0.4 - 0.5 for cross-education group elasticities. Card (2009) finds that substitutability
between high-school dropouts and high-school graduates is almost perfect. Substitutability is imperfect between college graduates and high-school equivalents (0.25
- 0.4). He concludes the large inflow of high-school dropout immigrants in recent
years should not affect native wage inequality since they can get absorbed in the
much larger high-school equivalent sector, as opposed to only the dropout sector.
61
Productivity weights differ across occupations as well. Normalizing the productivity weight of
the middle sector to 1, I find that high-skill sector has a 10% higher productivity weight and the
low skill sector has a 20% lower weight.
41
Substitutability across occupations is likely to be higher than between college and
high-school graduates since occupation changes are more common among adult labor
force participants.62
7.4
Decomposition
An obvious question is regarding the relative importance of changing quality
across new waves of immigrants and losses from the rising supply of substitutes in
the occupation. In this section, I provide some back of the envelope calculations for
the 2000 wage gap. I apply the previously estimated elasticities from 1990 to labor
supplies from 2000 to predict the wage gap between natives and immigrants in each
occupation category that can be accorded to competition.63 The elasticity estimates
from 1990 can be considered as a combination of competition between substitutes as
well as the base-level quality of new Asian immigrants. Between 1990-2000 the overall
relative immigrant-native labor supply rose by 40-50% in all occupation categories.
The increase in relative old Asian-native hours is similar. However the increase in
relative new Asian-native hours was between 80-90%, with the largest increase in
high-skill.64 Without changes in quality or the magnitude of substitutability, a rise in
inflows should lead to a wider native-immigrant wage gap as a result of competition
from substitutes. If the real 2000 gap is larger than the predicted gap, the difference
can be attributed to deteriorating quality.65 What I find is the opposite - the 1990
estimates predict a gap that is larger than the true gap for all occupation categories.
62
Pavan (2009) uses NLSY79 data to show that close to 20% of the workers change careers, which
he defines as a change in industry and occupation.
63
Elasticity estimates used are obtained from the IV regression with all metropolitan controls
including lags.
64
The largest rise in labor supply for all immigrants is in low-skill occupations.
65
Quality change can manifest as a change in productivity weights or the elasticity of substitution.
42
Table 12 shows the real metropolitan aggregate wage gap, as well as the predicted metropolitan wage gap for each occupation category in 1990 and 2000. Both
measures are weighted by the total labor force in the occupation in the relevant year.
Wage gaps are predicted assuming that established and entrant immigrants within
the occupation are perfect substitutes as well as by introducing the relevant level of
imperfect substitutability. The national gap based on individual observations is also
provided in rows 1,5 and 9 for comparison with a metropolitan aggregate.
The overall immigrant-native gaps for all occupation categories do not change
much between 1990 and 2000. This is seen for the old Asian-native wage gaps as
well. New Asian-native gaps actually decrease between 1990 and 2000. However, the
predicted gap for 2000 using 1990 elasticity estimates, predicts a much larger gap
for all immigrant groups compared to the real gap. This is to be expected since the
supply of competing substitutes has increased. Introducing a small but finite degree
of imperfect substitutability within immigrants usually reduces the magnitude of the
predicted gap but the over-estimation continues. For example, the real metropolitan
aggregate gap between new Asians and natives in middle occupations was 14.5% in
2000. The predicted gap is between 20-21%. There is a 6% points difference. The
difference is of a similar magnitude in high skill, while predictions are close to real
gaps in low skill. The difference between real and predicted gaps is around 3-4%
points for all immigrants, and between 4-5% points for old Asians.
I attribute the positive differences between real and predicted gap to an improvement in quality of immigrants between 1990 and 2000. National immigration policy
in the 1990s instituted a “preference system” in granting visas to high-skilled labor.
This attracted a larger number of professionals and other high-skilled labor in the
1990s. It is plausible to assume the improvement extends to unobservable quality.
Despite a rise in aggregate supply exerting a negative effect on immigrant wages, some
43
of the losses are countered by a rise in quality. If entrants and established immigrants
worked in separate markets i.e. there is almost no substitutability, one could have
expected the actual 2000 wage gap to be even narrower as a response to improvement
in quality.
The 2000 cohort might be observationally “better” but as previously noted there
was a decline in observable quality of immigrants between 1970-1990. Precise elasticity estimates from 1980 should then under-estimate the 1990 gap, leaving the difference to be explained by a fall in “quality”. Precise 1980 estimates are hard to
estimate since metropolitan demarcations between the 1970 and latter censuses are
not compatible, hence an instrument based on previous immigrant settlements from
1970 is difficult to construct. I use the OLS estimates to glean some information
about the patterns. Table 13 shows most of the 1990 gap overall immigrant-native
gap can be predicted in high and middle skill. Deterioration in quality has accounts
for 2.5% points of the low-skill gap, which is the occupation of concentration for the
overall immigrant population. Old Asians, on the other hand, continue to have an
overestimated gap pointing to gains in unobservable quality. Fall in quality of new
Asians accounts for 4-6% points of the wage gap in middle sector. Quality changes
do not explain much of the low or high skill gaps.
8
Conclusion
This paper focuses on a group of immigrants from Asian countries previously
under-represented in the U.S. labor market. Since 1965, immigrants from new Asia
have entered the U.S. in large numbers and their share in the U.S. labor force has
increased 20-fold. Immigrants are typically found to bridge the wage gap vis-a-vis
natives over their working life. However, I find that the wage gaps for new Asians
widen between the second and third decades of stay. Changing cohort quality has
44
limited role in explaining this curvature. I explain the shape using an “impact of
immigration argument” and build on Ottaviano & Peri’s (2006) idea that in the presence of imperfect substitutability across skill groups (occupations in this paper) and
lower substitutability between immigrants and natives than established and entrant
immigrants, a large inflow of immigrants will affect the wages of other substitute
immigrants. This idea is studied in a nested CES framework. The much larger
surge in their numbers combined with the fact that immigrants are seen to establish country-specific occupational niches in metropolitan labor markets, suggests a
larger fall in the wages of new Asians compared to other immigrant groups is probable. I exploit the metropolitan variation in occupational and immigrant labor supply
across metropolitan areas to estimate the substitution parameters. To correct for
endogeneity in spatial studies, I instrument local labor supply using the predicted
occupation-specific share of entrants in total metropolitan population, where location
and occupation choice of prior immigrants of each country predicts settlement and
occupation patterns of their entrants. I find that skill-based occupation categories are
imperfect substitutes of one another. Within each category, new Asian immigrants
and natives are imperfect substitutes. Established and entrant immigrants from new
Asia are closer substitutes, specially in high-skill occupations. To assess the power
of the explanation, I use model estimates from 1990 to predict wage gaps in 2000.
Based on rising supply of substitutes, the model predicts larger gaps compared to
real differences. Immigration policy in the 1990s favored high-skill labor and a rise
in quality of immigrants countered losses from competition. One must be cautious
about the future role of selection in granting visas. It is possible that with increased
demand and relaxation in visa rules, the quality of the threshold Asian immigrant
falls and competition in high-skill niches becomes more important.
45
Data source : Census 1970 1% sample, Census 1980 - 2000 5% samples, ACS 2007 sample. Sample includes labor force participants ages 25 to 65. Sample includes white
natives and immigrants from India, Korea or Vietnam in cohorts 1970, 1980, 1990 and 2000. Raw and controlled wage gaps for a cohort calculated at 0-5, 10-15 and 20+
years of stay.
Figure 1: Raw and Controlled Wage-Gap Profiles of New Asian Immigrants by Cohort.
46
Data source : Census 1970 1% sample, Census 1980 - 2000 5% samples, ACS 2007 sample. Sample includes labor force participants ages 25 to 65. Sample includes white
natives and immigrants from China or Philippines or non-Asian countries in cohorts 1970, 1980, 1990 and 2000. Raw and controlled wage gaps for a cohort calculated at
0-5, 10-15 and 20+ years of stay.
Figure 2: Raw and Controlled Wage-Gap Profiles of Old Asian Immigrants by Cohort.
47
Source : Census 1970 1% sample, Census 1980, 1990 and 2000 5% samples, ACS 2007 sample. Sample includes immigrants in the U.S. labor force participants aged 25 to
65. India, Korea and Vietnam are new Asian countries; China and Philippines are old Asia.
Figure 3: Change in the Share of Different Source Countries in the Foreign-born Labor Force of USA: 1970 - 2007.
48
49
Figure 4: Changes in the Duration Composition of New and Old Asians in the U.S.
1970-2007.
Data source : Census 1970 1% sample, Census 1980 - 2000 5% samples, ACS 2007 sample. Sample includes all labor
force participants between ages 25 to 65 from new and old Asian countries. India, Korea and Vietnam are new
Asian countries; China and Philippines are old Asia.
50
Figure 5: Residual Wage Gap Profiles of Asian Immigrants versus Natives (by Cohort).
Data source : Census 1970 1% sample, Census 1980 - 2000 5% samples, ACS 2007 sample. Sample includes labor
force participants 25 to 65 years old. Upper panel figures compares white native and new Asian immigrants. Lower
panel graph compares white natives and old Asians. Immigrants from cohorts 1970, 1980, 1990 and 2000 are
followed. Residual wage gap for a cohort is calculated at 0-5, 10-15 and 20+ years of stay. See text for wage
specification from which residuals are derived.
Figure 6: Settlement Patterns of Korean Immigrants across U.S. Metropolitan Areas.
51
Figure 7: Asian Immigrant Share and Share of High-skill Workers in the U.S. Labor Force.
52
53
Table 1: Descriptive Statistics for Natives and Immigrants from the 1990 Census.
Source : Census 1990 5% sample. Sample includes labor force participants aged 25 to 65. An advanced degree is
Masters degree or more. English ability is self-reported and anyone who only speaks English or speaks English very
well is said to have good English. Managerial, professional and technical occupations are high-skill. Sales,
administration and crafts are middle skill occupations.
Source : Census 1970 1% sample, Census 1980, 1990 and 2000 5% samples. Sample includes all labor force participants between ages 25 to 65. Education is measured in
completed years of education. The gender column shows the proportion of the group that is male.
Table 2: Change in Observable Characteristics of Natives and Immigrants 1970-2000.
54
Source : Census 1970 1% sample, Census 1980, 1990 and 2000 5% samples. Sample includes all labor force participants between ages 25 to 65. The numbers represent the
percentage of the group in an occupation category. All managerial, professional and technical occupations are high-skill. Sales, crafts and administration are middle-skill.
Service workers, operators and transport workers are low-skill.
Table 3: Change in Skill-based Occupation Composition for Natives and Immigrants 1970-2000.
55
Source : Census 1970 1% sample, Census 1980, 1990 and 2000 5% samples, ACS 2007 (IPUMS). Sample includes all labor force participants between ages 25 to 65 - native
or immigrant born in Korea or China. Numbers in parentheses show the percentage of the relevant group in the preferred metropolitan or occupation.
Table 4: Preferred Location and Occupation Choices of Korean and Chinese Immigrants 1970-2007.
56
Sample includes all immigrant labor force participants between ages 25 to 65. Standard errors in parentheses. All specifications are estimated for a metropolitan
cross-section in 1990, weighted by the metropolitan occupation-specific labor force of 1980. Dependent variable is mean residual wage difference between entrant and
established immigrants in each occupation category. Independent variable is the log relative labor supplies of these groups, measured by annual hours. The instrument in
the IV estimates is the predicted occupation-specific inflow of immigrants between 1980 and 1990, divided by metropolitan population in 1990 (see text for details).
Table 5: Substitution between all Established and Entrant Immigrants.
57
58
Table 6: Substitution between Established and Entrant Immigrants from Asia.
Sample includes new or old Asian labor force participants aged 25 to 65. Standard errors in parentheses. All
specifications are estimated on a metropolitan cross-section in 1990, weighted by the metropolitan
occupation-specific labor force of 1980. Dependent variable is the mean residual wage difference between Asian
entrant and established immigrants in each occupation category. Independent variable is the log relative labor
supplies of the groups, measured by annual work hours, in each category. The instrument in the IV estimates is the
predicted occupation-specific inflow of entrants between 1980 and 1990, divided by metropolitan population in 1990
(see details in text).
Sample includes all white native and immigrant labor force participants aged 25 to 65. Standard errors in parentheses. All specifications are estimated on a metropolitan
cross-section in 1990, weighted by the metropolitan occupation-specific labor force of 1980. Dependent variable is mean residual wage difference between natives and
immigrants in each occupation category. Independent variable is the log relative labor supplies of the groups in each category, measured by annual hours.Equation (2.6) in
the text shows immigrant labor supply. Intra-immigrant substitution is assumed to be perfect. The instrument in the IV estimates is the predicted occupation-specific
inflow of immigrants between 1980 and 1990, divided by metropolitan population in 1990 (see text for details).
Table 7: Substitution between Natives and all Immigrants (Inter-immigrant Substitution is Perfect)
59
60
Table 8: Substitution between Natives and Asian Immigrants (Inter-Asian Substitution is Perfect)
Sample includes all white native and new/old Asian labor force participants between ages 25 to 65. Standard errors
in parentheses. All specifications are estimated on a metropolitan cross-section in 1990 and weighted by the
metropolitan occupation-specific labor force of 1980. Dependent variable is mean residual wage difference between
new/old Asians and natives in each occupation category. Independent variable is the log relative labor supplies of
the groups in each category, measured by annual hours. Equation (2.9) in the text shows immigrant labor supply.
Intra-immigrant substitution is assumed to be perfect. The instrument in the IV estimates is the predicted
occupation-specific inflow of immigrants between 1980 and 1990, divided by metropolitan population in 1990 (see
text for details).
Sample includes all white native and immigrant labor force participants aged 25 to 65. Standard errors in parentheses. All specifications are estimated
on a metropolitan cross-section in 1990, weighted by the metropolitan occupation-specific labor force of 1980. Dependent variable is mean residual wage difference between
natives and immigrants in each occupation category. Independent variable is the log relative labor supplies of the groups in each category, measured by annual
hours.Equation (2.9) in the text shows immigrant labor supply. Intra-immigrant substitution is finite. The instrument in the IV estimates is the predicted
occupation-specific inflow of immigrants between 1980 and 1990, divided by metropolitan population in 1990 (see text for details).
vspace-0.1in
Table 9: Substitution between Natives and all Immigrants (Inter-immigrant Substitution is Finite)
61
62
Table 10: Substitution between Natives and Asian lmmigrants (inter-Asian Substitution is Finite)
Sample includes all white native and new/old Asian labor force participants between ages 25 to 65. Standard errors
in parentheses. All specifications are estimated on a metropolitan cross-section in 1990 and weighted by the
metropolitan occupation-specific labor force of 1980. Dependent variable is mean residual wage difference between
new/old Asians and natives in each occupation category. Independent variable is the log relative labor supplies of
the groups in each category, measured by annual hours. Equation (2.9) in the text shows immigrant labor supply.
Intra-immigrant substitution is finite. The instrument in the IV estimates is the predicted occupation-specific inflow
of immigrants between 1980 and 1990, divided by metropolitan population in 1990 (see text for details).
Sample includes all white native and immigrant labor force participants aged 25 to 65. Standard errors in parentheses. All specifications are estimated on a metropolitan
cross-section in 1990 and weighted by the metropolitan labor force of 1980. Dependent variable is difference in mean residual wage in high or low occupations versus
middle occupations. Independent variable is the log ratio of annual hours worked by the labor force in high/low occupations versus middle-occupation workers. See text
for details on construction of immigrant and occupation-specific labor supply and the instruments used in the IV estimates.
Table 11: Elasticity of Substitution between Occupation Categories (Middle Skill = Base)
63
64
Table 12: Native Immigrant Occupation Wage Gap of 2000 predicted using 1990
Parameters.
Data source : Censuses 1990 and 2000 5% samples. Sample includes all immigrant and native labor force
participants between ages 25 to 65. IV elasticity estimates from 1990 are used on labor supplies of 2000. All
specifications are estimated on a metropolitan cross-section using occupation-specific metropolitan weight as
weights. Last two rows of each block are the predicted wage gap. Predictions are compared to the entries in row
“metro aggregate gap”.
65
Table 13: Native Immigrant Occupation Wage Gap of 1990 predicted using 1980
Parameters.
Data source : Censuses 1980 and 1990 5% samples. Sample includes all immigrant and native labor force
participants between ages 25 to 65. OLS elasticity estimates from 1980 are used on labor supplies of 1990. All
specifications are estimated on a metropolitan cross-section using occupation-specific metropolitan weight as
weights. Last two rows of each block are the predicted wage gap. Predictions are compared to the entries in row
“metro aggregate gap”.
66
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