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The Role Of Cognitive Skills And Their Use At Work In Explaining The Immigrant-Native Wage Gap

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  • Maryna Tverdostup
  • Tiiu Paas

Abstract

This paper analyses the immigrant-native wage gap and incorporates cognitive skills to approximate an individual human capital profile. Based on data from the Programme for the International Assessment of Adult Competencies (PIAAC) for 15 European countries, we document that on average foreign-born respondents achieve substantially worse scores in literacy and numeracy test domain, and the observed gap in cognitive skill declines over the period of the host-country stay. The results of the analysis show that once we account additionally skill use at work in wage regressions, along with actual skill level, no statistically significant gap in earnings across immigrants and natives remains. These findings indicate that, despite similar cognitive skill levels and background traits, immigrants and natives may apply their skills at work to different extents, yielding a difference in their wage returns. Therefore, disparity in skill use at work plays an important role in explaining the immigrant-native wage gap. This leads us to conclude that immigrants are not yet sufficiently well integrated in European labour markets, and the potential for the development and application of their human capital is still underutilised. Further policy measures should profoundly consider these indications, taking into account that the role of immigrants and their labour supply is increasing remarkably in European societies.

Suggested Citation

  • Maryna Tverdostup & Tiiu Paas, 2017. "The Role Of Cognitive Skills And Their Use At Work In Explaining The Immigrant-Native Wage Gap," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 104, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    • Handle: RePEc:mtk:febawb:104
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    References listed on IDEAS

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    1. Alan Barrett & Adele Bergin & David Duffy, 2006. "The Labour Market Characteristics and Labour Market Impacts of Immigrants in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 37(1), pages 1-26.
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    3. Green, David A. & Worswick, Christopher, 2012. "Immigrant earnings profiles in the presence of human capital investment: Measuring cohort and macro effects," Labour Economics, Elsevier, vol. 19(2), pages 241-259.
    4. George J. Borjas, 2000. "Issues in the Economics of Immigration," NBER Books, National Bureau of Economic Research, Inc, number borj00-1.
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    6. Borjas, George J. (ed.), 2000. "Issues in the Economics of Immigration," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226066318, September.
    7. Robert C. M. Beyer, 2016. "The Labor Market Performance of Immigrants in Germany," IMF Working Papers 2016/006, International Monetary Fund.
    8. Allen, J.P. & Levels, M. & van der Velden, R.K.W., 2013. "Skill mismatch and skill use in developed countries: Evidence from the PIAAC study," ROA Research Memorandum 017, Maastricht University, Research Centre for Education and the Labour Market (ROA).
    9. Sweetman, Arthur, 2004. "Immigrant Source Country Educational Quality and Canadian Labour Market Outcomes," Analytical Studies Branch Research Paper Series 2004234e, Statistics Canada, Analytical Studies Branch.
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    11. Florian Lehmer & Johannes Ludsteck, 2011. "The Immigrant Wage Gap in Germany: Are East Europeans Worse Off?," ERSA conference papers ersa10p769, European Regional Science Association.
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    Cited by:

    1. Kai Ingwersen & Stephan L. Thomsen, 2021. "The immigrant-native wage gap in Germany revisited," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(4), pages 825-854, December.

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    More about this item

    Keywords

    migration; human capital; cognitive skills; PIAAC;
    All these keywords.

    JEL classification:

    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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