Economics
How does Immigration affect Native Labor Article Presentation

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Topic: How does immigration affect native labour?

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This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States Volume Author/Editor: David Card and Richard B. Freeman Volume Publisher: University of Chicago Press Volume ISBN: 0-226-09283-6 Volume URL: http://www.nber.org/books/card93-1 Conference Date: Jan 23-25, 1991 Publication Date: January 1993 Chapter Title: Immigration Policy, National Origin, and Immigrant Skills: A Comparison of Canada and the United States Chapter Author: George J. Borjas Chapter URL: http://www.nber.org/chapters/c11144 Chapter pages in book: (p. 21 - 44) 1 Immigration Policy, National Origin, and Immigrant Skills: A Comparison of Canada and the United States George J. Borjas 1.1 Introduction Both Canada and the United States are important participants in the immigration market. These two countries admitted over 12 million immigrants between 1959 and 1981. In recent years, their immigration policies have diverged considerably. Prior to the early 1960s, both Canada and the United States used national origin to allocate the scarce number of visas among the many applicants, preferring persons originating in northwestern European countries.) During the 1960s, the two countries enacted major immigration policy changes. As a result, the United States began to award entry permits on the basis of the applicant's family ties with U.S. residents or citizens, whereas Canada began to allocate visas on the basis of the applicant's observable socioeconomic characteristics. The historical comparison of immigrant skills and labor market performance between Canada and the United States, therefore, can provide useful lessons in the benefits and costs of skill-based immigration policies. Earlier work has documented important differences between the Canadian and U. S. experiences. 2 This paper continues this line of research and documents that many of the differences in the economic impact of foreign-born workers on Canada and the United States can be understood in terms of a simple hypothGeorge J. Borjas is professor of economics at the University of California, San Diego, and a research associate of the National Bureau of Economic Research. The author is grateful to Michael Abbott for useful comments and to the National Science Foundation (grant no. SES-8809281) for financial support. 1. There was also a sizable transnational migration between Canada and the United States. The size and skill composition of this flow is discussed in detail below. 2. See Abbott and Beach 1987; Bloom and Gunderson 1991; Borjas 1990; Chiswick 1987; and Tandon 1978. 21 22 George J. Borjas esis: the national-origin composition of immigrants in the two host countries is different. The source-country distribution of immigrant flows plays a crucial role because of substantial dispersion in skills and labor market performance among national-origin groups (Borjas 1987; Jasso and Rosenzweig 1986). In general, immigrants originating in industrialized economies are more skilled and are more successful in the host country's labor market than are immigrants originating in the less-developed countries. The empirical analysis below shows that the observed differences between Canada and the United States in the average skill level of foreign-born workers can mostly be "explained" by differences in the national-origin mix of the immigrant flows admitted into the two countries. This finding raises important questions about the efficacy of Canada's point system. My empirical analysis indicates that the point system works not because it attracts more skilled workers from a particular source country, but because it alters the national-origin mix of the immigrant flow. 3 This implication of the empirical evidence provides a very different understanding of how a point system increases the average skills of foreign-born workers. 1.2 Immigration Policies between 1960 and 1980 Prior to the 1965 amendments to the Immigration and Nationality Act, U.S. immigration policy was guided by the national-origins quota system. 4 Entry visas allocated to countries in the Eastern Hemisphere depended proportionately on their representation in the national-origin composition of the U.S. population in 1920. Because the ancestors of the great majority of U.S. residents originated in northwestern Europe, the United Kingdom was allocated 65,721 visas (almost half of the 150,000 available visas) and Germany was allocated 25,957 visas, whereas Italy was allocated 5,802 and Russia was allocated 2,784 visas. To prohibit the entry of Asian immigrants, Asian countries were generally allocated 100 visas per year. The national-origins quota system applied only to visa applicants originating in countries in the Eastern Hemisphere. Applicants from North and South America were exempt from the quotas and faced no numerical restrictions on the number of visas, presumably because of the close economic and political ties between the United States and its geographic neighbors. These visas were awarded on a first-come, first-served basis as long as the applicants satisfied a long list of requirements regarding their health and their political and moral backgrounds. 3. See Duleep and Regets (1990) for additional evidence that the skills of immigrants from specific source countries vary little between Canada and the United States. 4. Borjas (1990) presents a comparative review of Canadian and U.S. immigration policies. See also Boyd (1976) and Keely and Elwell (1981). 23 Immigration Policy, National Origin, and Immigrant Skills The 1965 amendments (and subsequent revisions) regulated the process of legal immigration throughout the 1970s and 1980s. Under the 1965 amendments, the United States permitted the entry of 270,000 persons per year, with no more than 20,000 immigrants originating in any particular country of origin. Instead of emphasizing national origin, the 1965 amendments made family reunification the central objective of immigration policy. This was accomplished through several provisions. First, 80 percent of the 270,000 numerically limited visas were awarded to "close" relatives of U.S. citizens or residents. These close relatives included unmarried adult children of U.S. citizens, siblings of adult U. S. citizens, and spouses of resident aliens. The remaining 20 percent of the visas were allocated to persons on the basis of their skills. A large number of these 54,000 visas, however, went to the families of the skilled workers who qualified for the visa. Furthermore, parents, spouses, and minor children of adult U. S. citizens could bypass the numerical restrictions specified in the legislation. These "immediate" relatives automatically qualified for entry and did not have to apply for one of the 270,000 numerically limited visas. By the late 1980s, more immigrants were entering under this single provision of the law than under all the family reunification preferences combined. Until 1961, Canadian immigration policy, like that of the United States, permitted the entry of persons originating in only a few selected countries, such as the United Kingdom, Ireland, and the United States, or of persons who were dependents of Canadian residents. Major policy changes in 1962 and 1967 removed the national-origin restrictions and shifted the emphasis in the visa allocation system toward skills requirements. Under the new regulations, applicants for entry into Canada were classified into three categories: sponsored immigrants (which included close relatives of Canadian residents), nominated relatives (which included more distant relatives of Canadian residents), and independent immigrants. Beginning in 1967, visa applicants in the last two of these categories were screened by means of a point system. Potential immigrants were graded and given up to 100 points. Points were awarded according to the applicant's education (a point per year of schooling, up to 20 points), occupational demand (up to 15 points if the applicant's occupation was in strong demand in Canada), age (up to 10 points for applicants under the age of 35, minus 1 point for each year over the age 35), arranged employment (10 points if the applicant had a job offer from a Canadian employer), a "personal assessment" by the immigration officer based on the applicant's motivation and initiative (up to 15 points), and other factors. Generally, an applicant needed to obtain 50 out of the 100 total points in order to pass the test and be awarded an entry visa. In 1976, Canada amended its Immigration Act and made it easier for the families of Canadian residents to migrate there. This was accomplished through a revised point system that, in essence, awarded extra points to nom- 24 George J. Borjas inated relatives. To some extent, Canada enacted a weak version of the 1965 amendments eleven years after the United States. Certainly the most noticeable consequence of the major policy shifts in Canada and the United States is the change that occurred in the national-origin mix of the immigrant flow. Table 1.1 summarizes the national-origin distribution of the immigrant flows admitted between 1959 and 1981. During the 1960s, about 40 percent of immigrants entering the United States originated in Europe. This had declined to 17 percent by the 1970s. In contrast, only 12.8 percent of immigrants in the 1960s originated in Asian countries, and this tripled to 37.2 percent by the 1970s. Similar changes were also observed in Canada. For instance, 70 percent of immigrants entering Canada in the 1960s originated in the United Kingdom or in other European countries. During the 1970s, the fraction of the immigrant flow originating in Europe was cut by half, to 37 percent. On the other hand, the fraction of immigrants originating in Asia almost quadrupled, from 8 percent in the 1960s to 29 percent in the 1970s. Although the trend away from European immigration and toward Asian immigration characterizes the experience of both Canada and the United States, it is important to note that there were significant differences in the nationalorigin mix of the immigrant flow between the two host countries in the 1970s. The fraction of immigrants originating in Europe was more than twice as large Table 1.1 Migration Flows into Canada and the United States, 1959-81 1959-70 Origin Number (in l000s) 1971-81 % of Total Number (in l000s) % of Total 2.1 17.5 8.4 23.5 46.0 2.5 71.5 427.9 457.3 237.8 340.1 34.3 1,568.9 4.6 27.3 29.1 15.2 21.7 2.2 1.1 46.6 12.8 7.0 31.9 0.6 106.5 2,175.7 1,898.1 138.5 729.5 41.5 5,089.8 2.0 42.7 37.3 2.7 14.3 0.8 Canada Africa Americas Asia United Kingdom Europe (excluding United Kingdom) Oceania and other Total 34.1 283.5 136.3 381.2 745.4 40.2 1,620.7 United States Africa Americas Asia United Kingdom Europe (excluding United Kingdom) Oceania and other Total 43.2 1,792.0 492.2 268.8 1,228.2 23.4 3,847.8 Sources: Leahy (1983); U.S. Immigration and Naturalization Service (various years). 25 Immigration Policy, National Origin, and Immigrant Skills in Canada, while the fraction of immigrants originating in the Americas (primarily Latin America) was almost three times as large in the United States. I will show that these national-origin differentials explain a major portion of the gap in average skills between immigrants in Canada and the United States. 1.3 Education and the "Choice" of a Host Country As a result of changes in immigration policy (as well as changes in economic conditions in the host and source countries), the relative size and skill composition of immigrant flows into Canada and the United States changed drastically in recent years. This section and the next describe the extent of these changes. Consider the population of persons who immigrate at any given time period into either Canada or the United States. These data can be used to calculate the fraction of immigrants who "choose" one country over the other. Table 1.2 reports the fraction of immigrants, by cohort and educational attainment, who migrated to the United States. I estimate the fraction of immigrants who chose the United States using the public use samples of the 1971 and 1981 Canadian censuses and the 1970 and 1980 U.S. censuses. The 1971 data are drawn from a 1/100 random sample of the Canadian population, while the 1981 data are drawn from a 2/100 sample. The 1970 U.S. census data for immigrants are a 2/100 random sample of the immigrant population, while the 1980 data are a 5/100 sample. The 1970/71 censuses are used to estimate the choice probabilities for the cohorts that migrated during the 1960s, and the 1980/81 censuses are used for estimating the choice probabilities of the cohorts that migrated in the 1970s. 5 Finally, the probabilities are calculated in the sample of immigrants (both men and women) aged 18-64. Between 1960 and 1980, 81.5 percent of the immigrants "chose" to reside in the United States. Note, however, that this statistic increased rapidly during the period. In the early 1960s, 77.2 percent of the sample migrated to the United States, while in the late 1970s 86.1 percent chose the United States. This reallocation of immigrants in the North American continent is due to policy changes in the United States that increased the annual number of immigrants, while the size of the annual immigrant flow in Canada remained relatively constant (see table 1.1). A more interesting result revealed by table 1.2 concerns the differential trends in the choice probability across schooling groups. Although the fraction of immigrants ending up in the United States increased in most schooling 5. The intervals reporting the immigrant's year of entry into the host country differ between the Canadian and u.s. censuses. For the post-1960 cohorts, however, these variations are relatively unimportant. The probabilities reported in table 1.2 weigh the observations in each of the censuses so as to ensure that the underlying time period defining each cohort has the same duration in the two host countries. 26 George J. Borjas Immigration to Canada and the United States, by Cohort and Education (fraction of immigrants "choosing" the United States) Table 1.2 Education Cohort Less than High School High School Some College College Graduate All .721 .719 .821 .869 .815 .864 .780 .798 .851 .825 .750 .578 .740 .831 .765 .824 .770 .828 .890 .849 .772 .719 .804 .861 .815 1960-64 1965-70 1970-74 1975-80 All Sources: The data for the 1960-64 and 1965-70 cohorts are drawn from the 1971 Canadian census and the 1970 U.S. census. The data for the 1970-74 and 1975-80 cohorts are drawn from the 1981 Canadian census and the 1980 U. S. census. The statistics are calculated in the sample of immigrants aged 18-64. groups, the increase was largest among the least educated. In the early 1960s, 72.1 percent of immigrants who did not have a high school diploma migrated to the United States. By the late 1970s, this statistic was 86.9 percent, an increase of almost 15 percentage points. In contrast, in the early 1960s, 82.4 percent of immigrants with a college diploma chose the United States, but by the early 1970s, the fraction increased to only 89.0 percent, less than 7 percentage points. Immigration policy reforms in Canada and the United States are probably responsible for these trends. Prior to the enactment of the point system in Canada, relatively more college graduates "chose" the United States as a destination point. By the late 1970s, after Canada began to restrict the entry of high school dropouts, the fraction of persons choosing the United States was the same for high school dropouts as for college graduates. 1.4 Immigrant Earnings in Canada and the United States Suppose two census cross-sections are available in a particular host country (the 1971 and 1981 censuses in Canada, or the 1970 and 1980 censuses in the United States), and the following regression model is estimated within a host country: (1) log wij = XJ3; + (XtYj + cx 2 Y; + .L ~tCt + ~;7rj + Eij' and (2) where W;j is the wage rate of immigrantj;wnf is the wage rate of native person e; X is a vector of socioeconomic characteristics (e. g., education, age); Y is a variable measuring the number of years that the immigrant has resided in the 27 Immigration Policy, National Origin, and Immigrant Skills host country; C is a vector of dummy variables indicating the calendar year in which the migration occurred; and 'TT is a dummy variable set to unity if the observation is drawn from the 1980/81 census, and to zero otherwise. The vector of parameters (a l , (2 ), along with the age coefficients in the vector X, measures the assimilation effect (Le., the rate at which the age-earnings profile of immigrants is converging to the age-earnings profiles of natives), while the vector of parameters ~ estimates the cohort effects. The period effects are given by 'Y i for immigrants and by 'Y n for natives. It is well known that the parameters of the system in (1) and (2) are not identified unless some normalization is made about either the aging, cohort, or period effects (Borjas 1991). In other words, two cross-sections cannot identify three separate sets of coefficients, and something must be assumed about one of the effects in order to identify the other two. I chose the normalization that the period effect experienced by immigrants ('Y) is identical to the period effect experienced by natives ('Yn)' This normalization, of course, implies that the relative wage differential between immigrants and natives is invariant to the business cycle. The data used to estimate (1) and (2) are drawn from the Canadian and U.S. censuses described in section 1.3. The regression analysis is restricted to prime-age men (aged 25-64) who are not self-employed, whose records report the relevant information needed to calculate a wage rate in the year prior to the census, and who are not residing in group quarters. Although all immigrant observations are used in the analysis, I use random samples of the native population in the United States because of the large number of natives surveyed. 6 The mean characteristics in these samples are reported in table 1.3 for the post-1960 cohorts. The descriptive data yield a number of important results. The U.S. census clearly documents the importance of cohort effects in immigrant labor market performance. The most recent arrivals in the 1970 census (i.e., the 1965-69 cohort) have - 0.3 fewer years of education than natives and earn about 16 percent less than natives. By 1980, the most recent arrivals (i.e., the 1975-79 cohort) have -0.8 fewer years of schooling and earn almost 30 percent less than natives. Remarkably, despite the enactment of the point system, the Canadian data show a somewhat similar pattern. The educational attainment of the most recent immigrants in 1971 is 12.0 years, while that of the most recent immigrants in 1981 is 12.6 years, an increase of over half a year in schooling. At the same time, however, the educational attainment of recent immigrants relative to Canadian natives declined from a 2. I-year advantage in 1971 to a 1.3year advantage in 1981, and the relative wage of recent immigrants decreased from - 2. 1 percent in 1971 to - 17.2 percent in 1981. Although the educa6. The 1970 U.S. native sample is a 111,000 extract, while the 1980 U.S. native sample is a 112,500 extract. 28 George J. Borjas Education and Wages of Immigrants in Canada and the United States, by Cohort Table 1.3 1981 1971 Cohort Education Relative Education Relative Wage Education Relative Education Relative Wage Canada 1960-64 10.506 1965-70 12.043 0.599 (4.51) 2.136 (21.34) -.008 ( -0.44) -.021 (-1.51) 11.217 12.351 1970-74 12.370 1975-80 12.603 -0.086 (- 0.94) 1.048 (15.69) 1.067 (13.55) 1.300 (16.32) ...
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Running head: HOW DOES IMMIGRATION AFFECT NATIVE LABOR

How does Immigration affect Native Labor
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Institution:

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HOW DOES IMMIGRATION AFFECT NATIVE LABOR

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How does Immigration affect Native Labor
Immigrants play a vital role in contributing to the flourishing of labor markets in both the
United States and Canada. However, the differences in their policies has played an important role
in affecting the native labor markets. The article compares looks at how immigration policies
over the years have changed the labor markets in both countries.
Canada and the US
In the early 1960s, Canada preferred immigrants from northwestern European. The
immigrants who entered the country during this time were 0.4 fewer years of schooling
compared to a typical immigrant...

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