Immigration, the act of moving from one nation-state to the other, has been
going on globally for centuries now. People move for different reasons -
some leave their country because of political or religious coercion; some
go to other countries to reunite with loved ones or friends; in general,
however, a large population of people move to other countries looking and
expecting an economically better life style and an easier accessibility
to social welfares. This last group of immigrants is the ones who have been
consistently fueling the increasing population of the perceived well-to-do
countries such as the United States in Northern America and Sweden in Northern
Europe. In the last decade or so, both of these countries have been experiencing
an unprecedented peak with their immigrant inflow. Consequently, besides
the ongoing heated immigration policy debates, many population economists
are also incessantly studying the economic progression of immigrant in both
absolute and relative terms. I will present to you in this paper main ideas
from George J. Borjas's "The Economic Progress of Immigrants,"
and his other "Welfare Reform, Labor Supply, and Health Insurance in
the Immigration Population;" plus Jorgen Hansen & Magnus Lofsrom's
"Immigrant Assimilation and Welfare Participation: Do Immigrants Assimilate
Into or Out of Welfare?"
The overwhelming influx of immigrants into the big cities of the United
States has, among other areas affected, greatly influenced the labor market
in terms of diversity, human capital investment, and wage differences. George
J. Borjas applied the 1970-1990 decennial Census data to study the relationship
between the entry wage of immigrants and the subsequent rate of wage growth.
First of all, it is worth noting that how well immigrants progress in the
work place and how much they contribute to the overall economy largely depends
on "how immigrants perform when they first enter the country, as well
as on their long-run economic prospects."1 Generally, studies has found
that immigrants earn less than natives at the time of entry into the labor
market, and then this wage gap gradually narrows as immigrants learn more
recognizable skills and adapt into the workforce. Many other studies also
conclude that the rate of wage convergence between immigrants and natives
is not very large. However, most of these studies are disregarding the importance
of the effect of the various levels of human capitals the immigrants possess
at the time of starting anew in the U.S. labor force. People coming from
more developed countries usually possess a sizable amount of knowledge about
the U.S. labor market and the essential skills; these immigrants are the
ones having a higher human capital. On the other side, immigrants hailing
from less developed countries would accordingly have a much lower possession
of necessary human capitals. This latter group of immigrants, therefore,
would be receiving a comparatively lower entry wage than the former group
of immigrants.
Nevertheless, these two groups of immigrants with heterogeneous human capital stock would eventually end up on the same rate of wage growth, meaning that their future wage growth rate would eventually meet and converge. The process it takes for the wage convergence to happen is that the lower-initial-human-capital group of immigrants would immediately start investing in building and strengthening their capital such as learning English and taking U.S. economic lessons. Of course, these immigrants recognize the forgone earnings and the opportunity cost they are accumulating by spending time on capital investment. However, they justify by taking into account the post-investment higher pay-offs they would receive. On the other hand, the higher-initial-human-capital group of immigrants would minimize their rate of human capital investment but maximize their present value of earnings because they find it too expensive to augment their capital stock since they are already endowed with a substantial level of effective human capitals.2 Consequently, this group of skilled immigrants would only have a slower, more steady wage growth rate, and eventually the other group of less skilled immigrants would catch up with the growth in wage and the two would converge at one point. Overall, there is an agreeing general negative correlation between the log entry wage and the rate of wage growth, although this relationship is more pronounced for the initially unskilled immigrants than the initially skilled immigrants; nevertheless, there certainly also exist the positive wage convergence of the wage growth rate.3 In a contrary case, we could also argue for a positive correlation between the entry wage and the latter rate of wage increase. This is possible because immigrants who enter the United States with a large endowment of effective human capital would have an easier time to adapt and acquire additional skills valued by the U.S. labor market. Therefore, these immigrants, having a high entry wage already, would invest heavily in additional human capital acquisition and enjoy a faster wage growth as well. Besides the human capital factor, the difference in the education level among the immigrants and the natives are also of significant influence. When controlling the level of educational attainment between the immigrants and natives, the wage gap between these two groups falls. "For example, the entry wage of the immigrants who migrated in 1970-74 and were 35-44 years old in 1980 is 20 percent lower than that of natives in the same age group, but is only 15 percent lower than that of natives who have the same age and educational attainment."4 Furthermore, this control in education also turns the positive convergence coefficient of the wage growth rate negative. Further controls of the difference in country of origin, time period of arrival, and ages also result in negative convergence coefficient. In other words, having originated in different countries, arrived at different times, at different ages, and had different education attainment, immigrants' wage would stay heterogeneous for a long time, or their wage would not possibly meet one another in anytime during their life.
With the almost definite wage increase among the ever-growing population
of immigrants, before 1996, many, including the government turned to focus
on if immigrants are sharing a fair financial burden of the welfare programs
as they vastly taking advantage of these programs. Then, in 1996, a welfare
reform legislation, named the Personal Responsibility a Work Opportunity
Act (PRWORA), sets new stringent rules for determining the eligibility of
foreign-born persons to receive practically all types of federal aid. Consequently,
"available evidence indicates that the rate of welfare participation
in immigrant household declined sharply (the chilling effect) - relative
to the decline in native households."5 Speculating that this widely
observed welfare cutbacks would have increased the size of the foreign-born
uninsured population, George Borjas again, by using the 1995-2001 Current
Population Surveys, delved into finding out the total reality effect of
these public assistance reductions on the immigrants' behaviors in the labor
market as well as the private insurance market. Opposed to the speculation,
the uninsured immigrant population actually stays steady and in some states
the number even falls. Looking at the different states, one would see the
variation in how respective states enforce the new 1996 reform legislation
differently because all states totally have the freedom on how, and to whom,
the welfare assistance would be distributed to. Some states are more generous
than others, and that has created a big difference in the level of chilling
effect. "The fraction of non-citizens enrolled in Medicaid declined
by 7.0 percentage points in the less generous states, but by 4.9 percentage
points in the more generous states."6 It is clear that non-citizen
households in the more generous states have been experiencing a less severe
public assistance reduction than the less generous states. However, in almost
all states, the private health insurance has risen as well as the labor
supply of the foreign-born persons. Borjas theorizes that as the welfare
cutbacks are taking place, the general population of immigrants starts more
actively joining the labor force in heightening their probability of being
covered by the alternative coverage: the employer-sponsored insurance (ESI).
Much of the collected data and controlled regression models support this
theory, although there is still a relative heterogeneity in the rate of
increase in ESI between the generous states and the less generous states
- "the rate of ESI coverage for non-citizens rose by 2.7 percentage
points in the more generous states, and by an astounding 11.4 percentage
points in the less generous states;"7 plus, "the labor force participation
rate of immigrants increase slightly from 84.2 to 85.8 percent in the more
generous states, but increase much faster from 83.1 to 86.9 percent in the
less generous states."8 Overall, the concurrent increasing participation
in alternative health coverage, mainly the ESI through an increasing labor
force participation rate, has been, to a large extent, completely offsetting
the drawbacks the immigrants are suffering from the Medicaid cutbacks especially
in the less generous states.
Besides the United States, on the other side of the Atlantic Ocean, Sweden,
a country well known for its generous public assistance program for both
the natives and the foreign-born residents, is also undergoing an intensive
check on the casual relationship between the immigrant representation in
the welfare programs and the dramatic increase in the social assistance
expenditure. From the general observations, for example, "by the mid-1990s,
expenditures on social assistance for immigrants equaled expenditures for
natives, even though immigrants represented only 10-11 percent of the total
population,"9 people are already boldly concluding that immigration
is the most significant contributor to the increase in welfare costs. However,
taking a deeper analysis, Jorgen Hansen and Magnus Lofstrom, applying the
Swedish Longitudinal Individual Data (LINDA), aim to find out whether the
overrepresentation of immigrants among public assistance receiving household
is due to differences in observable characteristics, such as age, family
composition and the level of education, or if it is due to unobservable
heterogeneity; they also aim to answer the question whether immigrants are
likely to assimilate into or out of welfare dependency in the long run,
and the consequent effects this has on the future welfare expenditures.
The immigrant population is differentiated between the refugees and the
non-refugees. Looking through the data in LINDA, it is observable that foreign-born
households on welfare are younger, less educated and, to a larger degree,
single, as compared to households not on public assistance. Moreover, "for
immigrants, refugee households have on average higher post-secondary education
compared to native Swedish and nonrefugee immigrant households. Also, the
fraction of college-educated household receiving social assistance is substantially
larger among refugees than among the other two groups."10 In contrast,
an actual execution of running the random-effects probit models of welfare
participation came up with a rather opposing result. With the aforementioned
observable characteristics controlled for, all immigrants still appear to
be more likely to participate in the welfare programs. Even when the characteristics
are not totally controlled, differences in observable socioeconomic characteristics
explain very little of the heterogeneity in welfare participation between
native Swedish and immigrants.11 The next step of analyzing how immigrants
welfare participation behavior changes with time spent in the host country
did not generate the same discord between the data observation and the empirical
model. The agreeing conclusion indicates that the general population of
immigrant actually gradually assimilates out of the social assistance system
as the time of their stay at Sweden lengthens. Nevertheless, one noteworthy
point is again the difference between refugees and nonrefugee immigrants.
Refugees tend to start with a higher participation rate in welfare program
(usually between 40 to 50 percentage point higher), but they then also assimilate
more quickly (usually drop down to 10 percentage points) than the nonrefugee
immigrants.12 In general, it has also been discovered that social welfare
recipients have on average been in Sweden for a shorter period than those
households off social assistance.
Immigration is nevertheless at the continuing rise in many countries around
the globe such as the United States and Sweden as the heated welfare debates
also keeps on going in these countries; however, with many host country
natives complaining and proving that immigrants are profusely consuming
resources without paying the equal share of costs, and with examples of
terrorist attacks in the United states, the prospect of immigration looks
very pessimistic. In fact, ironically, the United States, a country with
a great number of its technological innovations & economical institutions
initiated by foreign-born brilliant minds, and a country with its current
major city populations held up largely by immigrants, is already taking
numerous extreme measures in restricting foreign-scholars' entry into the
labor market as well as strengthening general immigration & naturalization
rules. Ideally, an immigrant country like the United States ought to keep
on welcoming immigrants in supporting the growing economy; plus, all immigrant
countries should also not forget the fact that immigration has deeply rooted
in their countries and has become the support net of many infrastructures;
thus, these countries should strive to tend to the social-economical well-being
of its immigrants while balancing the benefits for the country's natives
at the same time.
Borjas, George J. (2000), The Economic Progress of Immigrants, National
Bureau of Economic Research Working Paper, 6506.
Borjas, George J., (2003), Welfare Reform, Labor Supply, and Health Insurance
in the Immigrant Population, National Bureau of Economic Research Working
Paper 9781.
9Hansen, Jorgen; Lofstrom, Magnus (2003), "Immigrant Assimilation and
Welfare Participation: Do Immigrants Assimilate into or Out of Welfare?",
Journal of Human Resources v38, n1 (Winter 2003): 74-98.