Sources of Earnings Differentials Among Migrants and Natives

The theory of human capital postulates that earnings of different categories of workers, be they male or female, black or white, unionised or non-unionised depend on the level of human capital endowment of these individuals [Becker (1964) and Mineer (1974)]. Besides educational attainment and on-the-job experience, part of the earnings differential, at lest in the short run, can also result from market imperfections such as restrictions on factor mobility or other artificial distortions. However, despite concerted efforts by public and social institutions to remove social injustice, the automatic long run market clearance as envisaged by classical economists is not always there. It is not uncommon to find workers with identical background and skills receiving differentials treatment in terms of wages and other rewards. This suggests that unobservable personal characteristics are also positively valued at the market and that the market has a "taste" for discrimination! The theory of discrimination thus hypothesises that differential wages ,can exit if market differentiates and treats distinct categories of workers on the basis of race, gender or similar categorisations.