The potential relationships between the log entry wage and the rate of wage growth are illustrated in Figure 1. These cases can be used to construct simple empirical tests that might distinguish among the various possibilities and provide valuable information about the human capital production function faced by immigrants. For example, suppose that there is weak relative complementarity in the production function. The variables that increase the immigrant’s effective human capital at the time of entry would then have the same qualitative effect on the log entry wage and on the rate of wage growth. In contrast, if there were relative substitution, then variables that increase effective human capital would have a positive impact on the log entry wage but a negative impact on the rate of wage growth. The empirical analysis presented below suggests that the data is best summarized by a “weak” positive correlation between log entry wages and the rate of wage growth. Put differently, immigrants with high levels of effective human capital experience both higher entry wages and faster economic progress in the United States. This finding suggests that the immigrant human capital production function exhibits weak relative complementarity.
Data and Basic Trends
The study uses data drawn from the 1970,1980, and 1990 PUMS. A person is classified as an “immigrant” if bom in a foreign country; all other workers are classified as “natives”.9 I drew a one-percent random sample from the native population in each of the Census years. The immigrant extract comprises a two-percent random sample in 1970 and a five-percent random sample in both 1980 and 1990.10 In each Census year, the study is restricted to men aged 25-64 who work in the civilian sector, are not self-employed, and do not reside in group quarters.
Consider the cohort of immigrants who migrated from country i, in calendar year j, when they were к years old. To calculate the wage for each of the cohorts in the analysis, consider the following individual-level regression model:
where wijk(t) is the hourly wage of cohort (i,j, k) in calendar year t;X is a vector of socioeconomic characteristics (discussed below); vj]k(t) is a fixed effect giving the “adjusted” wage of a person who belongs to the cohort; and sijk(f) is the stochastic error, assumed independent from all other variables in the model.