Human Capital and Development Accounting: New Evidence from Wage Gains at Migration

We reconsider the role for human capital in accounting for cross-country income differences. Our contribution is to bring to bear new data on the pre- and post- migration labor market experiences of immigrants to the U.S. Immigrants from poor countries experience wage gains that are only 40 percent of the GDP per worker gap. This fact implies that “country†accounts for only 40 percent of cross-country income differences, while human capital accounts for the other 60 percent. Our work deals with two well-known problems in the literature. It controls for selection by using data on the wages of the same individual in two different countries. We provide evidence on the importance of skill transfer by comparing pre- and post-migration occupations. Occupational downgrading at migration is common; corrections for this imply that human capital may account for as little as 50 percent of cross-country income differences.