Changes in the Quality of Immigrant Flows between the United States and Canada in the 1980s

Mueller, Richard E., American Review of Canadian Studies

Introduction and Background

It is well known that individuals will desire to migrate to the location where returns to their abilities are the highest, other things equal. An important theoretical factor in determining these returns is the relative distribution of earnings in the source and host countries. If the earnings variance in the country of origin is less than that in the country of destination (assuming that the correlation in earnings across the two countries is positive and sizeable), we expect those from the upper tail of the distribution (that is, those with the highest skills) to migrate, since incomes will be maximized by doing so. Conversely, if the source country has a wider distribution of income than the host country, we would expect those from the lower tail of the distribution (that is, those with the lowest skills) to migrate, since they too would have higher earnings in the host country. In the context of a bilateral immigration relationship, this would then imply that the country with the wider distribution of income would have high-quality immigrants wishing to enter, while the country with the more egalitarian distribution would have lower quality immigrant flows.

Borjas (1988, 1993) has addressed immigration between Canada and the United States within the context of such a wealth-maximization model. He found that Canadians tend to perform well in the United States (in terms of earnings) relative to native Americans, while Americans tend to perform relatively poorly in Canada, even when controlling for different human capital characteristics. (1) He hypothesized the less equal distribution of income in the United States relative to Canada could cause this outcome and that individuals seeking to maximize wealth will self-select into the appropriate economy. Thus, insofar as people are free to move between the two countries, Canadians of high ability will choose to migrate to the United States where returns to their abilities are higher, while Americans of more limited ability will seek to enter Canada, since they will earn higher wages than they could in the United States. This result is somewhat puzzling given that Canada has, since the 1960s, explicitly followed an immigration policy that has sought to enhance the quality of immigrants (from all source countries) by screening out those who may have a limited ability to assimilate into the Canadian labor market. Borjas, however, argues that the screening process in Canada can only evaluate immigrants on the basis of observable characteristics, not unobservable characteristics, even though the latter are also important in determining earnings. (2) He asserts that: "In the end, regardless of what immigration policy says, only those persons who gain from immigration do so. Governments legislate, but it is people who immigrate" (Borjas 1990, 216).

It has also been well established that there has been an increase in earnings inequality in the United States in the 1980s. The review article by Levy and Murnane (1992) shows that earnings inequality increased in the United States for both males and females in the 1980s. Furthermore, this trend towards increased inequality has favored high-skilled workers. In Canada, earnings inequality also increased over the same period (Morissette, Myles, and Picot 1993; Morissette and Berube 1996; Burbridge, Magee, and Robb 1997). In comparing the changes in the earnings distribution in the two countries, however, the literature suggests that this increase in earnings dispersion has been much greater in the United States (Blackburn and Bloom 1993; Gottschalk and Smeeding 1997; Richardson 1997). (3)

This change in the relative earnings distribution should be manifest in the form of varying immigrant quality on either side of the border. In this context, the implication of the wealth-maximization model is that the United States should attract Canadians with greater skills (and hence higher earnings) than natives, and that Americans with lower skills (and hence lower earnings) compared to natives would continue to migrate to Canada. In other words, we would expect that the 1980s cohort of Americans who immigrated to Canada would be qualitatively inferior (in terms of earnings) to those Canadians who immigrated to the United States during that same time period when we control for observable labor market characteristics.

The specific objectives of this paper are: first, to address the economic assimilation of Canadians in the United States and Americans in Canada during the 1980s; second, in doing so to test the robustness of the Borjas assertion that the types of immigrant selection biases are, at least in part, due to the relative earnings dispersion; and, third, to explicitly include female migrants in the analysis. The international migration literature, in general, and the relevant work by Borjas, in particular, focus on the earnings assimilation of prime-age male immigrants, but there is increasing evidence that female immigrants may have different labor market experiences than male immigrants (Baker and Benjamin 1997; Beach and Worswick 1993; Fagnan 1995).

Methodology

To ascertain whether the wealth-maximization model is correct in determining the immigration patterns between the two countries in the 1980s, the now-common methodology of using synthetic panels will be employed. The initial research on the economic adaptation of immigrants (Chiswick 1978) used cross-sectional data from the United States to estimate the earnings disadvantage that immigrants experienced at the time of entry into the U.S. labor market (the entry effect), as well as the rate of growth of earnings that exceeded the growth rate of native earnings (the assimilation effect). The use of only one cross-section, however, does not permit the estimation of qualitative differences between successive entry cohorts (the cohort effect). The reason for this is simple. In a cross-section of data, we view each immigrant at time t. If the immigrant has been in the host country for ten years, his/her year of entry (YOE) would be t-10 and the number of years since migration (YSM) would equal ten. Thus, if the observation is drawn from the 1990 U.S. census, for example, t = 1990, YSM = 10, and YOE = 1990 - 10 = 1980. In other words, YSM = t - YOE. Thus, YSM and YOE are perfectly correlated and one of these independent variables must be dropped to successfully estimate the model. Since we are normally concerned with the rate of assimilation of immigrants in the population (that is, the coefficient on YSM), the coefficients on YOE variables are constrained to be equal. Consequently, we cannot determine if there are qualitative differences in immigrants based on their entry cohort. This is a serious limitation, given that changes in U.S. and Canadian immigration policies have been shown to result in qualitative differences between immigrant cohorts. (4)

To circumvent this problem, Borjas (1985) advocated using synthetic-panel data, whereby observations are drawn from two separate crosssectional data sets. These are not true panel data, but they do allow the estimation of both assimilation and cohort effects. (5) We use a slight variation of this model. While Borjas used separate equations to estimate native and immigrant earnings, we follow the lead of Bloom, Grenier and Gunderson (1995) who used the basic empirical model of Chiswick (1978) augmented to allow for the estimation of cohort-specific effects. The main difference is that the socioeconomic characteristics of natives and immigrants are constrained to be the same in each case. Thus, for example, estimation of a single equation would imply that a year of education has the same effect on earnings for both natives and immigrants. This could be a serious limitation if the group of immigrants was more heterogenous, but given the structural similarities of the two countries, it seems like a reasonable assumption for our purposes. (6) Thus, the following regression model is estimated:

lnearn = X[beta] + [alpha]IMMIG + [eta]YSM * IMMIG + [[summation].sub.i][[delta].sub.l][C.sub.j] * IMMIG + [lambda]CENS (1)

where lnearn is the natural logarithm of the nominal yearly earnings and [chi] is a vector of individual socioeconomic characteristics for immigrants and natives that contains information on years of education and experience, marital status, and residence in an urban area. We also control for the number of weeks worked and part-time status. Although not a perfect measure, it has been shown that increases in inequality of weekly earnings in Canada have in part been the result of increased inequality in weekly hours worked (Morissette, Myles and Picot 1993; Morissette 1995; Doiron and Barrett 1996). The vector [beta] is the estimate of returns to these skills, which is constrained to be equal for both immigrants and natives; YSM is the number of years that the immigrant has resided in the host country; IMMIG is a dummy variable equal to one for immigrants; and [C.sub.j] is a dummy variable for the entry cohort of the immigrant. (7) Finally, the variable CENS is a dummy coded to one if the observation was drawn from the 1990 U.S. census or 1991 Canadian census.

This equation gives estimates of the entry effect ([alpha]), which shows the earnings premium of immigrants at the time of landing; the assimilation effect ([eta]), reflecting the rate at which immigrant earnings converge towards those of natives; and the cohort effect ([[delta].sub.j]), which reflects qualitative differences in the earnings of various entry cohorts. Finally, the period effect ([lambda]) reflects changes in the economy over the intercensal period, which are (necessarily) assumed to be equal for immigrants and natives. Following Bloom, Grenier, and Gunderson (1995), we can also estimate the years to earnings parity with natives from these coefficients by adding the entry and cohort effects and dividing by the assimilation effect; that is, -([alpha] + [[delta].sub.j]) / [eta].

Data

The Canadian data are drawn from the individual files of the 1981 (2 percent) and 1991 (3 percent) Canadian censuses. In each case, all American-born are retained, while a 1/10 subsample of the Canadian-born was randomly chosen. The United States data are obtained by merging the 5 percent (Sample A) housing and individual records of the 1990 U.S. census with the 1/1000 sample (Sample B) of the 1980 U.S. census. All observations were kept from the 1980 sample, while a 1/100 subsample of the American-born was randomly generated from the 1990 sample. All Canadian-born individuals were retained from each sample. (8)

The samples were further limited to include only non-institutionalized individuals between the ages of twenty-five and sixty-four who worked at least one week in the year prior to the census, were not self-employed, did not attend school, and had at least $1000 in (nominal and local currency) earnings in the reference calendar year. The income variable is the natural logarithm of annual earnings. This includes wage and salary income, as well as self-employment income. Although we eliminated the self-employed from the samples in both countries, those who are primarily engaged in paid employment may still have some income from self-employment. To keep the income variables comparable between countries, this was the variable we decided to utilize.

The years of education variable (YEARSED) was coded to equal the number of years corresponding to the …

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Publication information: Article title: Changes in the Quality of Immigrant Flows between the United States and Canada in the 1980s. Contributors: Mueller, Richard E. - Author. Journal title: American Review of Canadian Studies. Volume: 29. Issue: 4 Publication date: Winter 1999. Page number: 621+. © 2008 Association for Canadian Studies in the United States. COPYRIGHT 1999 Gale Group.

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