Academic Literature

University-Educated Immigrants in Australia, Canada, and the US – Performance advantage in US

Recent years have seen a push in the U.S. and in a number of European countries, including the U.K. and Germany, for governments to adopt `point systems’ for screening prospective immigrants on human capital criteria. The appeal of a `points system’ reflects not only concerns about the potential adverse effects of unskilled migrant flows on public finances and wage inequality, but also the potential for skilled immigrants to raise economic growth through their contributions to trade, entrepreneurship, and innovation. Evidence that skilled immigrants may have the potential to produce positive productivity spillovers on their native‐born coworkers, goes a long way in making the economic case for immigration where public opinion is growing increasingly skeptical.

Ironically, at the same time that the U.S. and Europe push for `points systems,’ Australia and Canada have been struggling to find policy remedies to address the disappointing labour market performance of their own skilled immigrants. Beginning in the late 1990s, Australia made significant revisions to its ‘points system’ introducing pre‐migration language testing and credential assessment. In addition, it implemented a `two‐step’ immigration system, in large part mimicking the U.S.’s system of relying on employers, rather than governments, to screen skilled migrant workers. In the face of evidence that recent Canadian university‐educated immigrants were lagging behind their Australian counterparts, the Canadian government made similar reforms to its `points system’ in the mid‐2000s and also began to increasingly draw on skilled migrants employed on temporary work permits and student visas as a source of new permanent residents.

To outside observers, these contrasting policy directions suggest a lack of consensus on optimal skilled immigration policy, despite agreement on its objectives. This is perhaps understandable, given that the economics literature offers little evidence on what works. In fact, if anything, the evidence suggests that differences in immigrant screening policies are not what underlie differences in the economic performance of immigrants across countries or within countries over time.

There are two main findings of our analysis. First, in contrast to much of the current literature, we find evidence of improving relative labour market earnings of university‐educated immigrant men through the 1990s and 2000s in Australia, Canada, and the United States. Moreover, the timing of these gains roughly coincides with immigration policy reforms within these countries: the expansion of the H‐1B program in the U.S. in the late 1990s; the ramping up of Australia’s `points system’ and shift towards `two‐step’ migration in the late 1990s and through the 2000s; and the similar policy reforms in Canada in the mid‐ 2000s. Second, despite these recent gains for Australian and Canadian immigrants, our estimates point to a larger and persistent performance advantage in the full‐time earnings of university‐educated immigrant men in the United States. This advantage is evident even among immigrants from the same source country and tends to be largest among immigrants born in India, among those employed in STEM jobs, and in the middle of the earnings distribution.

One interpretation of the exceptional performance of U.S. skilled immigrants is that `two‐step’ immigration, which accounts for the migration pathway of roughly three‐quarters of the U.S. immigrants in our sample, leads to superior labour market outcomes, because immigrants avoid job search at arrival. There are three reasons we think this interpretation is lacking. First, in comparison to Australian immigrants, we find no evidence of a U.S. advantage in employment rates among the most recent cohorts. Rather the U.S. advantage is evident only in full‐time earnings. Second, comparing post‐migration earnings growth of Canadian and U.S. immigrants suggests that the U.S. advantage is not a short‐term phenomenon. Third, the advantage persists even as the importance of `two‐step’ immigration in Australia, and to a lesser extent Canada, has converged to the United States. If the U.S. advantage simply reflected the potentially long‐term effects of job search frictions for Australian and Canadian immigrants, we would expect the earnings performance of Australia’s most recent arrival cohorts, who have superior employment outcomes to their U.S. counterparts, to be much closer in magnitude to the U.S. estimates.

It also seems unlikely that the large U.S. performance advantage reflects lower levels of labour market discrimination in the U.S. or the beneficial effects of basing immigrant selection on family‐ reunification objectives, as emphasized by Duleep and Regets (1992). Data from the U.S. Survey of College Graduates suggests that less than one‐quarter of our university‐educated male sample initially entered the U.S. as permanent residents under any stream. Moreover, of the 780,452 managers and professionals who obtained U.S. legal permanent residence status between 2005 and 2011, only 35% entered under a family‐stream program. In comparison, 20% and 13% of male university‐educated new permanent residents through the 2000s in Australia and Canada, respectively, entered under a family‐stream program. Although, U.S. family‐stream share is highest, the difference relative to Australia and Canada seems unlikely to be large enough to account for the large difference in their average labour market performance. We also find it difficult to conceive of reasons why Indian, Chinese, or Filipino university‐ educated immigrants would experience more discrimination in Australian and Canadian labour markets than in the United States. Certainly, we are not aware of any evidence consistent with this explanation.

Overall, in our view the persistent performance advantage of university‐educated immigrants in the U.S. appears most consistent with the hypothesis that U.S. university‐educated migrants are relatively positively selected owing to persistently higher income inequality in the United States and a greater role for employers in immigrant selection. Moreover, the fact that the performance advantage is larger in the middle of the earnings distribution than at the lower end, suggests that it is primarily driven by higher returns to labour market skills in the U.S., as opposed to the relative economic security of Australia’s and Canada’s more generous social welfare systems, which should primarily serve to depress relative immigrant earnings at the lower end of the distribution.

Chosen excerpts by Job Market Monitor. Read the whole story at A comparative analysis of the labour market performance of university-educated immigrants in Australia, Canada, and the United States: does policy matter?

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