As we have seen, there are huge differences in log entry wages across national origin groups. Many studies have found that the initial economic performance of immigrants in the United States is strongly correlated with source country characteristics. For example, Boijas (1987) reports that immigrant wages depend positively on the per-capita GDP of the source country and negatively on measures of income inequality. Similarly, Jasso and Rosenzweig (1986) report a positive correlation between immigrant wages and a variable indicating if the country of origin receives a Voice of America broadcast (presumably because these broadcasts provide information about the United States).
Suppose we interpret some of the source country characteristics as rough measures of the effective human capital of immigrant cohorts. The human capital model presented earlier then predicts that the qualitative effects of the source country characteristics on the log entry wage and on the rate of wage growth depends on the extent of relative complementarity or substitutability in the production function. The convergence regressions suggest that the production function exhibits weak relative complementarity between pre-existing human capital and post-migration investments. We would then expect that the source country variables have the same qualitative impact on the log entry wage and on the rate of wage growth. To examine this theoretical implication, I constructed a data set summarizing various economic characteristics for 75 source countries. The source country characteristics are:
1. Per-capita GDP in the source country. I used the Penn World Tables (Version 5.6) to obtain a measure of per-capita GDP in 1960, 1965,1970, and 1975. These dates were chosen to correspond with the time at which each of the four year-of-migration cohorts left the source country. Immigrants from richer countries tend to earn more in the United States—even after controlling for educational attainment and other observable measures of a worker’s skills. Presumably, this correlation arises because the skills acquired in industrialized economies are more easily transferable to the United States. If increases in per-capita GDP raise the effective human capital that immigrants bring to the United States and if there is weak relative complementarity in the human capital production function, the theory predicts that immigrants originating in richer countries should also higher rates of wage growth.