Immigrant Skill Selection and Utilization: A Comparative Analysis for Australia, Canada, and the United States

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1 Immigrant Skill Selection and Utilization: A Comparative Analysis for Australia, Canada, and the United States Andrew Clarke University of Melbourne Mikal Skuterud University of Waterloo CRDCN National Conference October 2-3, 2013 Waterloo, Ontario

2 Introduction Large immigrant receiving countries: Australia, Canada, United States Global war for talent skill-biased technical change less likely to rely on social assistance and pay more taxes than less skilled immigrants their children are more successful more innovative Differences in immigrant selection and settlement policies. Which policies: attract highly skilled immigrants? efficiently utilize immigrant s skills?

3 Introduction Large immigrant receiving countries: Australia, Canada, United States Global war for talent skill-biased technical change less likely to rely on social assistance and pay more taxes than less skilled immigrants their children are more successful more innovative Differences in immigrant selection and settlement policies. Which policies: attract highly skilled immigrants? efficiently utilize immigrant s skills?

4 Introduction Large immigrant receiving countries: Australia, Canada, United States Global war for talent skill-biased technical change less likely to rely on social assistance and pay more taxes than less skilled immigrants their children are more successful more innovative Differences in immigrant selection and settlement policies. Which policies: attract highly skilled immigrants? efficiently utilize immigrant s skills?

5 Difference in Immigrant Selection & Settlement Policies Australia & Canada points system: select economic immigrants on basis of observable skills: age, education, occupation, language Australia: pre-migration mandatory language testing, greater emphasis on pre-arranged employment, formal credential recognition, limited unemployment benefits United States unlimited family immigrants limited employer sponsored immigrants Institutions Australia & Canada generous redistribution systems, public health generous minimum wages United States: higher reward for skill? Immigrant Self-Selection

6 Difference in Immigrant Selection & Settlement Policies Australia & Canada points system: select economic immigrants on basis of observable skills: age, education, occupation, language Australia: pre-migration mandatory language testing, greater emphasis on pre-arranged employment, formal credential recognition, limited unemployment benefits United States unlimited family immigrants limited employer sponsored immigrants Institutions Australia & Canada generous redistribution systems, public health generous minimum wages United States: higher reward for skill? Immigrant Self-Selection

7 Difference in Immigrant Selection & Settlement Policies Australia & Canada points system: select economic immigrants on basis of observable skills: age, education, occupation, language Australia: pre-migration mandatory language testing, greater emphasis on pre-arranged employment, formal credential recognition, limited unemployment benefits United States unlimited family immigrants limited employer sponsored immigrants Institutions Australia & Canada generous redistribution systems, public health generous minimum wages United States: higher reward for skill? Immigrant Self-Selection

8 Difference in Immigrant Selection & Settlement Policies Australia & Canada points system: select economic immigrants on basis of observable skills: age, education, occupation, language Australia: pre-migration mandatory language testing, greater emphasis on pre-arranged employment, formal credential recognition, limited unemployment benefits United States unlimited family immigrants limited employer sponsored immigrants Institutions Australia & Canada generous redistribution systems, public health generous minimum wages United States: higher reward for skill? Immigrant Self-Selection

9 Research Questions 1 Are the differences in immigrants skill and the labour market returns to these skills in Australia, Canada, U.S. consistent with differences in their policies? 2 Is there evidence that Australia s and Canada s selective points systems have lead to greater immigrant skills than the U.S.? 3 How effective are the Australian & Canadian selective points system in allocating immigrant skills across jobs? 4 Have the Australian immigration reforms of the 1990 s led to better selection & integration of immigrants? 5 Could the US benefit from moving to a selective points system like Australia & Canada?

10 Research Questions 1 Are the differences in immigrants skill and the labour market returns to these skills in Australia, Canada, U.S. consistent with differences in their policies? 2 Is there evidence that Australia s and Canada s selective points systems have lead to greater immigrant skills than the U.S.? 3 How effective are the Australian & Canadian selective points system in allocating immigrant skills across jobs? 4 Have the Australian immigration reforms of the 1990 s led to better selection & integration of immigrants? 5 Could the US benefit from moving to a selective points system like Australia & Canada?

11 Research Questions 1 Are the differences in immigrants skill and the labour market returns to these skills in Australia, Canada, U.S. consistent with differences in their policies? 2 Is there evidence that Australia s and Canada s selective points systems have lead to greater immigrant skills than the U.S.? 3 How effective are the Australian & Canadian selective points system in allocating immigrant skills across jobs? 4 Have the Australian immigration reforms of the 1990 s led to better selection & integration of immigrants? 5 Could the US benefit from moving to a selective points system like Australia & Canada?

12 Research Questions 1 Are the differences in immigrants skill and the labour market returns to these skills in Australia, Canada, U.S. consistent with differences in their policies? 2 Is there evidence that Australia s and Canada s selective points systems have lead to greater immigrant skills than the U.S.? 3 How effective are the Australian & Canadian selective points system in allocating immigrant skills across jobs? 4 Have the Australian immigration reforms of the 1990 s led to better selection & integration of immigrants? 5 Could the US benefit from moving to a selective points system like Australia & Canada?

13 Research Questions 1 Are the differences in immigrants skill and the labour market returns to these skills in Australia, Canada, U.S. consistent with differences in their policies? 2 Is there evidence that Australia s and Canada s selective points systems have lead to greater immigrant skills than the U.S.? 3 How effective are the Australian & Canadian selective points system in allocating immigrant skills across jobs? 4 Have the Australian immigration reforms of the 1990 s led to better selection & integration of immigrants? 5 Could the US benefit from moving to a selective points system like Australia & Canada?

14 Family Class Flows, Australia, Canada, and the U.S. Family Class: Share of Recent Permanent Arrivals Share of Recent Permanent Arrivals Year Share: Australia Share: United States Share: Canada

15 Assessed Economic Class Flows, Australia and Canada Economic/Employer Class: Share of Recent Permanent Arrivals Share of Permanent Arrivals Year Share: Australia Share: United States Share: Canada

16 Refugee Class Flows, Australia and Canada Refugee Class: Share of Recent Permanent Arrivals Share of Permanent Arrivals Year Share: Australia Share: United States Share: Canada

17 Earlier Evidence Antecol, Cobb-Clark, Trejo (JHR, 2003) Focus on skill of immigrants to Australia, Canada, and the USA compare language skills, education, income using 1990/1991 population census immigrants in Australia & Canada have better language skills, more education, higher income relative to immigrants in the USA conclusion: source-country composition matters caveats: years of schooling poor proxy for foreign-educated income differences reflect differences in immigrant skill as well as utilization of skill four-point self-reported measure of language skills

18 Earlier Evidence Antecol, Cobb-Clark, Trejo (JHR, 2003) Focus on skill of immigrants to Australia, Canada, and the USA compare language skills, education, income using 1990/1991 population census immigrants in Australia & Canada have better language skills, more education, higher income relative to immigrants in the USA conclusion: source-country composition matters caveats: years of schooling poor proxy for foreign-educated income differences reflect differences in immigrant skill as well as utilization of skill four-point self-reported measure of language skills

19 Earlier Evidence Ferrer, Green & Riddell (JHR, 2006) IALS 1994: compare literacy/cognitive skills of immigrants & native-born in Canada only differences in literacy explain large portion of wage-gaps of foreign trained immigrants no evidence of different returns to these skills for immigrants and native-born workers cannot make international comparisons This paper: use later Adult Literacy & Life Skills Survey (ALLS) for Australia, Canada, USA updates & corroborates conclusions in Antecol et al. (2003) using continuous measure of skill provide estimates of returns to measured skill in Australia, Canada, USA

20 Earlier Evidence Ferrer, Green & Riddell (JHR, 2006) IALS 1994: compare literacy/cognitive skills of immigrants & native-born in Canada only differences in literacy explain large portion of wage-gaps of foreign trained immigrants no evidence of different returns to these skills for immigrants and native-born workers cannot make international comparisons This paper: use later Adult Literacy & Life Skills Survey (ALLS) for Australia, Canada, USA updates & corroborates conclusions in Antecol et al. (2003) using continuous measure of skill provide estimates of returns to measured skill in Australia, Canada, USA

21 Data: Adult Literacy & Life Skills Survey provides measures of literacy & numeracy as well as detailed information on: demographics labour force activities survey designed for international comparisons: each country used the same psychometric test to measure skill domains sampling frame: non-institutionalised civilian population data collection: Australia: July 2006-January 2007 Canada: March 2003-September 2003 United States: January 2003-June 2003 respondent s completed written task to assess their proficiency in several skill domains: prose literacy, document literacy, numeracy

22 Data: Adult Literacy & Life Skills Survey provides measures of literacy & numeracy as well as detailed information on: demographics labour force activities survey designed for international comparisons: each country used the same psychometric test to measure skill domains sampling frame: non-institutionalised civilian population data collection: Australia: July 2006-January 2007 Canada: March 2003-September 2003 United States: January 2003-June 2003 respondent s completed written task to assess their proficiency in several skill domains: prose literacy, document literacy, numeracy

23 Data: Adult Literacy & Life Skills Survey provides measures of literacy & numeracy as well as detailed information on: demographics labour force activities survey designed for international comparisons: each country used the same psychometric test to measure skill domains sampling frame: non-institutionalised civilian population data collection: Australia: July 2006-January 2007 Canada: March 2003-September 2003 United States: January 2003-June 2003 respondent s completed written task to assess their proficiency in several skill domains: prose literacy, document literacy, numeracy

24 Data: Adult Literacy & Life Skills Survey 1 Prose Literacy: knowledge/skills needed to understand & use information from text (news stories, instructions manuals etc...) 2 Document Literacy: knowledge/skills required to locate & use information contained in various formats (job applications, forms, maps, tables, charts etc...) 3 Numeracy: knowledge/ skills required to effectively manage and respond to the mathematical demands of diverse situations.

25 Data: Adult Literacy & Life Skills Survey Outcome measures: 1 probability of employment: 1 held a job in previous 12 months? 2 employment status in reference week 2 hourly wage in main job held in the previous 12 months Sample restrictions: individuals aged 18-64, exclude students, self employed immigrants: arrived after 1955, age at immigration 14+ country of birth not available for US sample: use first language learnt & understood groups: native mother tongue, foreign mother tongue in US: Spanish foreign mother tongue, other foreign mother tongue

26 Data: Adult Literacy & Life Skills Survey Outcome measures: 1 probability of employment: 1 held a job in previous 12 months? 2 employment status in reference week 2 hourly wage in main job held in the previous 12 months Sample restrictions: individuals aged 18-64, exclude students, self employed immigrants: arrived after 1955, age at immigration 14+ country of birth not available for US sample: use first language learnt & understood groups: native mother tongue, foreign mother tongue in US: Spanish foreign mother tongue, other foreign mother tongue

27 Sample Characteristics: Table Native-Born 2: Sample Characteristics Native-Born Australia Canada USA N Mean N Mean N Mean Female 2, , , Age , , , , , , , , Education Less than High School 1, , High School , Certificate & Diploma 1, , University 1, , Occupation White Collar 1, , Clerks & Sales 1, , Skilled Blue Collar , Unskilled Blue Collar Not Employed Last 12 Months 1, , Notes: For Australia and the United States, individuals are characterised as having a native mother tongue if English was their first language learnt and understood. For Canada, a native mother tongue is defined for either English or French. Recent immigrants are defined as foreign-born individuals that have resided in the destination country for less than 10 years. The sample means are weighted using the available population weights.

28 Sample Characteristics: Table Immigrants 3: Sample Characteristics Immigrants Australia Canada USA N Mean N Mean N Mean Female , Age Education Less than High School High School Certificate & Diploma University Occupation White Collar Clerks & Sales Skilled Blue Collar Unskilled Blue Collar Not Employed Last 12 Months Notes: For Australia and the United States, individuals are characterised as having a native mother tongue if English was their first language learnt and understood. For Canada, a native mother tongue is defined for either English or French. Recent immigrants are defined as foreign-born individuals that have resided in the destination country for less than 10 years. The sample means are weighted using the available population weights.

29 Sample Characteristics: Immigrants Table 4: Sample Characteristics Immigrants Australia Canada USA N Mean N Mean N Mean Immigrants All Immigrants 1, , Native Mother Tongue Other Mother Tongue , Spanish Mother Tongue Non-Spanish Mother Tongue Recent Immigrants , Recent: Native Mother Tongue Recent : Other Mother Tongue Recent: Spanish Mother Tongue Recent: Not-Spanish Mother Tongue Not Recent: Native Mother Tongue Not Recent : Other Mother Tongue Not Recent: Spanish Mother Tongue Not Recent: Not-Spanish Mother Tongue Notes: For Australia and the United States, individuals are characterised as having a native mother tongue if English was their first language learnt and understood. For Canada, a native mother tongue is defined for either English or French. Recent immigrants are defined as foreign-born individuals that have resided in the destination country for less than 10 years. The sample means are weighted using the available population weights.

30 Mean AverageTable Skill: 6: Mean Native-Born Skill Across Selected Sample Characteristics Native-Born Australia Canada USA Mean Jackknife Mean Jackknife Mean Jackknife Std. Err Std. Err Std. Err Full Sample Gender Male Female Age Education Less than High School High School Certificate & Diploma University Occupation White Collar Clerks & Sales Skilled Blue Collar Unskilled Blue Collar Not Employed Last 12 Months Notes: The sample means are weighted using the available population weights. Some notes here about the replicate weights.

31 Mean Average Skill: Immigrants Table 7: Mean Skill Across Selected Sample Characteristics Immigrants Australia Canada USA Mean Jackknife Mean Jackknife Mean Jackknife Std. Err Std. Err Std. Err Full Sample Gender Male Female Age Education Less than High School High School Certificate & Diploma University Occupation White Collar Clerks & Sales Skilled Blue Collar Unskilled Blue Collar Not Employed Last 12 Months Notes: The sample means are weighted using the available population weights. Some notes here about the replicate weights.

32 Mean Average Skill: Immigrants Table 8: Mean Skill Across Selected Immigrant Sample Characteristics Australia Canada USA Mean Jackknife Mean Jackknife Mean Jackknife Std. Err Std.Err Std. Err All Immigrants Native Mother Tongue Other Mother Tongue Spanish Mother Tongue Non-Spanish Mother Tongue Recent Immigrants Not Recent Immigrants Recent: Native Mother Tongue Recent : Other Mother Tongue Recent: Spanish Mother Tongue Recent: Not-Spanish Mother Tongue Not Recent: Native Mother Tongue Not Recent : Other Mother Tongue Not Recent: Spanish Mother Tongue Not Recent: Not-Spanish Mother Tongue Notes: For Australia and the United States, individuals are characterised as having a native mother tongue if English was their first language learnt and understood. For Canada, a native mother tongue is defined for either English or French. Recent immigrants are defined as foreign-born individuals that have resided in the destination country for less than 10 years. The sample means are weighted using the available population weights. Some notes here about the replicate weights.

33 Mean Average Skill: Immigrants Distribution of Immigrant Literacy Skills All immigrants Recent immigrants Percentile Percentile Australia Canada USA Immigrants with a foreign mother tongue Percentile Recent immigrants with a foreign mother tongue Percentile Australia Canada USA - Spanish USA - Other

34 Summary: Immigrant Skill little to distinguish immigrants with a foreign mother tongue in the three countries no evidence that selective points system led to higher immigrant skills in Australia & Canada some evidence Australian immigration reforms improved skills between 20th-40th percentiles (where reforms are binding) Lessons for the United States: current policy successful in attracting high quality non-spanish immigrants, particularly above the 70th percentile move to points system would mainly be binding for Spanish immigrants but unlikely to raise skills of non-spanish (not-binding) points system for legal immigrants: unable to raise skills of undocumented immigrants from Mexico?

35 Summary: Immigrant Skill little to distinguish immigrants with a foreign mother tongue in the three countries no evidence that selective points system led to higher immigrant skills in Australia & Canada some evidence Australian immigration reforms improved skills between 20th-40th percentiles (where reforms are binding) Lessons for the United States: current policy successful in attracting high quality non-spanish immigrants, particularly above the 70th percentile move to points system would mainly be binding for Spanish immigrants but unlikely to raise skills of non-spanish (not-binding) points system for legal immigrants: unable to raise skills of undocumented immigrants from Mexico?

36 Relative Log Wages: Immigrants & Native-Born Econometric Model ln w i = β 0 + β s skill i + β sm (skill i M i ) + β m M i + X β + ε i Note: No controls for education. Why? Four Models 1 immigrant dummy 2 recent/not-recent immigrants 3 native/foreign mother tongue 4 recent/not recent interacted with native/foreign mother tongue

37 Relative Log Wages: Immigrants & Native-Born Unconditional Wage Gap no evidence of wage gap for non-spanish foreign mother tongue in US largest wage gap for Spanish foreign mother tongue in US foreign mother tongue: wage gap larger in Canada than Australia Returns to Average Skill returns to a average skill highest in US, lowest in Australia consistent with labour market institutions Immigrant Return to Average Skill lower relative return to skill for foreign mother tongue to Australia higher relative return to average skill for non-spanish foreign mother tongue to USA Canada in the middle but imprecisely estimated

38 Relative Log Wages: Immigrants & Native-Born Table 10: (Log) Wages Australia Canada United States Spanish Not Spanish coeff. coeff. coeff. coeff. coeff. All Immigrants Average Skill a a a Average Skill*Immigrant c Immigrant c c Intercept a a a (Unconditional Wage Gap) b a a R No. Observations 4,351 12,729 2,108 Immigrants with Foreign Mother Tongue Average Skill a a a Average Skill*Immigrant b b Immigrant b c Intercept a a a (Unconditional Wage Gap) a a a R Recent Immigrants with Foreign Mother Tongue Average Skill a a a Average Skill*Immigrant b b Immigrant c Intercept a a a (Unconditional Wage Gap) a a a R

39 Predicted Relative Wage Gap by Skill Score Recent immigrants with a foreign mother tongue Skill Australia Canada USA - Spanish USA - Other

40 Predicted Relative Wage Gap by Skill Score Less Skilled Immigrants US (and to a lesser extent Australian) labour markets successful in matching low skilled immigrants to low skilled jobs with low returns to skill Non-Spanish Foreign Mother Tongue why do these immigrants earn a higher return to skills, compared to natives or compared to Aus & Cdn immigrants? 1 matching: similar skills in all three countries but US labour market better at matching immigrant skills to jobs 2 selection on unobservables: Australian Immigration Reforms in the 1990 s no evidence that reforms improved utilisation of immigrant skill

41 Predicted Relative Wage Gap by Skill Score Less Skilled Immigrants US (and to a lesser extent Australian) labour markets successful in matching low skilled immigrants to low skilled jobs with low returns to skill Non-Spanish Foreign Mother Tongue why do these immigrants earn a higher return to skills, compared to natives or compared to Aus & Cdn immigrants? 1 matching: similar skills in all three countries but US labour market better at matching immigrant skills to jobs 2 selection on unobservables: Australian Immigration Reforms in the 1990 s no evidence that reforms improved utilisation of immigrant skill

42 Predicted Relative Wage Gap by Skill Score Less Skilled Immigrants US (and to a lesser extent Australian) labour markets successful in matching low skilled immigrants to low skilled jobs with low returns to skill Non-Spanish Foreign Mother Tongue why do these immigrants earn a higher return to skills, compared to natives or compared to Aus & Cdn immigrants? 1 matching: similar skills in all three countries but US labour market better at matching immigrant skills to jobs 2 selection on unobservables: Australian Immigration Reforms in the 1990 s no evidence that reforms improved utilisation of immigrant skill

43 Summary 1 very little to distinguish skills of immigrants with a foreign mother tongue. 2 some evidence Australian reforms have improved immigrant skills in the bottom tom of the skill distribution. 3 robust evidence that immigrants to the USA with a non-spanish foreign mother tongue receive a greater reward for their skills, relative to a similarly skilled native-born worker, and relative to a similarly skilled immigrant in Australia and Canada from a similar source country. consistent with selection on unobservables Lessons for US Immigration Reform move to points system unlikely to be successful in improving skills. Why?

44 Summary 1 very little to distinguish skills of immigrants with a foreign mother tongue. 2 some evidence Australian reforms have improved immigrant skills in the bottom tom of the skill distribution. 3 robust evidence that immigrants to the USA with a non-spanish foreign mother tongue receive a greater reward for their skills, relative to a similarly skilled native-born worker, and relative to a similarly skilled immigrant in Australia and Canada from a similar source country. consistent with selection on unobservables Lessons for US Immigration Reform move to points system unlikely to be successful in improving skills. Why?

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