A Comparative Analysis of the Nativity Wealth Gap

By Bauer, Thomas K.; Cobb-Clark, Deborah A. et al. | Economic Inquiry, October 2011 | Go to article overview

A Comparative Analysis of the Nativity Wealth Gap


Bauer, Thomas K., Cobb-Clark, Deborah A., Hildebrand, Vincent A., Sinning, Mathias G., Economic Inquiry


I. INTRODUCTION

In many countries worldwide, substantial numbers of immigrants are at (or near) retirement age. In the United States and Germany, for example, immigrants are as likely as the native born to be over the age of 55 yr, while in Australia the foreign-born population is currently aging more rapidly than the native-born population (Bauer et al., 2007). We know very little about immigrants' capacity to provide for themselves in old age, although there are reasons to believe that both wealth levels and portfolio allocations depend on nativity (Amuedo-Dorantes and Pozo, 2002; Cobb-Clark and Hildebrand, 2006a, 2006b). Given this, it is important to know more about the way in which immigrants accumulate wealth and achieve economic security.

This paper addresses this issue by analyzing the wealth gap between immigrant and native households in Australia, Germany, and the United States. We take advantage of recent data collections in each of these countries using a unique opportunity to assess the wealth position of immigrant households. Differences in survey design and coverage will prevent us from directly comparing wealth levels across countries. However, following studies of cross-national differences in the gender wage gap (Blau and Kahn, 1992), we will assess how the nativity wealth gap differs across countries. We are particularly interested in addressing the following questions: First, how does household net worth vary by nativity status, region of origin, and immigration cohort? Second, how important are factors such as income differentials, disparities in educational attainment, and demographic characteristics in producing these wealth gaps? Finally, what can we say about the role that the institutional setting might play in generating any nativity wealth gap?

These are important questions given that wealth provides the resources necessary to maintain living standards in retirement or in times of economic hardship. Moreover, wealth is a fundamental component of overall economic wellbeing that directly influences immigrants' ability to integrate into host country society. Wealthier families have more political influence and live in neighborhoods with better schools, enhanced health facilities, and less crime (Altonji and Doraszelski, 2005; Gittleman and Wolff, 2004). At the same time, immigrants" economic wellbeing is almost certainly linked to the institutional setting, making it difficult to generalize research findings across national boundaries.

Australia, Germany, and the United States provide an interesting case study because they span the spectrum from a traditional immigration country accepting mainly permanent, skilled immigrants (Australia) to a country with a long history of accepting only temporary, predominantly unskilled workers (Germany). The results of our comparative analysis are necessarily inferential, but nonetheless provide some important insights into the ways that the institutional framework might influence the relative wealth position of immigrant families.

Our results indicate that in Germany and the United States wealth differentials are largely the result of disparity in the educational attainment and demographic composition of the native and immigrant populations, while income differentials are less important in understanding the nativity wealth gap. In contrast, the relatively small wealth gap between Australian- and foreign-born households cannot be explained by either the distribution of income or immigrants' characteristics. Indeed immigrants would have a wealth advantage if they accumulated wealth in the same way as the Australian born. On balance, our results point to substantial cross-national disparity in the economic well-being of immigrant and native families that is largely consistent with domestic labor markets and the selection policies used to shape the nature of the immigration flow.

II. THE INSTITUTIONAL SETTING

The comparative nature of our analysis provides an opportunity to shed light on the ways in which a country's institutional setting might lead to a nativity gap in wealth levels.

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