Review of Global Evidence John Page and Sonia Plaza The World Bank

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Migrants in developed country labor markets

Migrants have mixed success in the labor markets of receiving countries. Some migrants are very successful, but others are unemployed or inactive. In part, labor market outcomes are influenced by education and foreign language fluency, which are key determinants of labor market success. There also appear to be significant differences between the job market success of expatriates from developed countries and those from developing countries.

Wages, incomes and employment rates

Case study evidence of migrants’ labor market performance in receiving countries shows that most immigrants from developing countries, regardless of their destination, suffer an earnings penalty and higher inactivity levels and unemployment rates than nationals. Additionally, recent arrivals from developing countries to developed ones face lower earnings and greater competition in labor markets, relative to more established immigrants. Table 4.1 gives employment rate estimates for legal foreign residents in the EU by region of origin. Unemployment rates for immigrants originating from developing countries are uniformly higher than those from more developed economies. This gap is more pronounced for women than men across all skill levels. The highest unemployment rates are encountered by immigrants from Africa, the Middle East, and Turkey.

Munz and Fassmann (2004) found that third country nationals who immigrated to the EU after the late 1990s tended, on average, to have higher skill levels than those immigrants who had entered the EU in the 1970s and 1980s. However, the activity rates of the newcomers were lower and their unemployment rates higher than those who immigrated two decades before. The employment rate of migrant’s from non-EU countries who arrived in 2001 (45 percent) was almost 20 points below that of those who arrived ten years earlier (OECDE/SOPEMI 2003, 2004). A number of Canadian studies ( Boom Grennier, and Guderson 1995, Grant 1999; Frenette 2002, and Morrisette, 2003) show a substantial deterioration in the entry level earnings of more recent male immigrant cohorts through the 1970s, 1980s, and first half of the 1990s.
Sweden is a country in which income differences between migrants from developed and developing countries are increasing. Over the years, Sweden has seen inflows of two distinct groups of foreigners. One group, arrived mainly in the 1960s and 1970s, and was comprised of economic immigrants from Norway and Finland. The second, more recent group is mostly composed of migrants from Iran, Iraq and the former Yugoslavia. These immigrants, in contrast with the Nordics have different skill sets and languages from the general Swedish population. According to Groff (2005) there exists a substantial and persistent income gap between recent refugee populations in Sweden and the Swedes. However, the Nordic immigrants who arrived in the 1970s received wages very similar to the Swedish population. Bevelander (2000) similarly reports a collapse in Swedish immigrant employment rates after 1975. The employment rates for both foreign born and foreign citizen immigrants dropped to about 60 percent by the late 1990s, in marked contrast to the 1960s when both groups enjoyed employment rates of 90 percent at the same wage level as the Swedish born population.

Returns to skills, education and foreign labor market experience

If the stock of an immigrant’s human capital obtained in his home country is not fully transferable to the requirements of the host country’s labor market, the migrant faces an earnings disadvantage at the time of migration. In order to narrow this wage gap, migrants invest in country-specific human capital in the labor receiving country and adapt their stock of human capital acquired in their country of origin. Immigrants acquire skills that are relevant for the labor market in the host country such as language, and ways of doing business. This form of investment is what economists call economic assimilation. (Chiswik, 1978 and Borjas, 1985).

Econometric studies have used the attributes of immigrants to explain entry and post-entry wages and earnings growth. While much of the wage differential between migrants and local labor force participants can be explained by migrants attributes, some studies have found that migrants’ qualifications are undervalued in the labor market. Borjas (1987), Jasso and Rosenzweig (1986) and Dullep and Regets (1996) find that immigrants from English-speaking countries perform better than immigrants from non-English-speaking countries in the U.S. Kee (1993) analyzes the earnings of Dutch immigrants from Turkey, Morocco, Surinam and the Antilles. His findings --unlike those in Turkey and Morocco-- indicate that similarity of the schooling system in Surinam, the Antilles and the Netherlands results in a positive effect of education obtained in those countries on wages. Bell (1997) and Shields and Wheatley Price (2002) find that male migrants receive a lower return per year of education than natives and that education abroad is valued less than education in the U.K Shields & Wheathley (2001) find that language fluency increases the mean hourly occupational wage for ethnic minority migrant men by around 17%. Green and Green (1995) show that immigrants who have passed the point system in Canada are working in positions commensurate with their skills, while family migrants and refugees are employed in lower skilled positions. Hunt (2004) concludes that between one-quarter and one-half of the overall difference in entry earnings between Canada’s immigrant men and women and nationals can be attributed to declining wage returns to foreign labor market experience.

Self employment opportunities in host countries

Lack of access to employment opportunities commensurate with immigrants’ human capital may encourage them to look for self employment, business alternatives. Some research has been conducted (Logan, Aliba and Stults, 2003, Portes, Haller and Guarnizo, 2002) on immigrant entrepreneurship. It finds that where the process of integration of immigrants into the host’s labor market is difficult, immigrants have established small and medium firms as self-employment alternatives.

Self-employment of migrants from developing countries has not been well researched. 22 Self-employment is spreading among foreign workers in the OECD with the exception of France and Belgium SOPEMI 2004 (Table 4.2).
Immigrant-owned firms are mainly retail, wholesale, personal and professional service enterprises (Table 4.3) and are typically operated by family members. The management structure is comprised of the immigrant owner and his/her close family members and relatives. Portes, Haller and Guarnizo (2001) found that these firms sell their goods and services to co-immigrant communities and are “an alternative form of economic adaptation”. They also suggest that these activities have “potential significance for immigrant integration into receiving countries and for the economic development of countries of origin.”

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