Empirical analysis

Here I check if the results of the empirical analysis match the predictions of the human capital investment model. To investigate immigrant earnings in Brazil, I follow

Duleep et al. (2014). I estimate the following wage equation on data that pool immigrants and natives:

yit=βXit+θsit+βExpExpit+βExp 2

Exp2_it

+βimim+ (θimsit+βimExpExpit+βimExp 2

Exp2_it)×im+it

(2.4)

where:

im - immigrant indicator;

Xit - observable characteristics other than education and experience;

sit - years of schooling;

Expit - total potential experience;

The interaction of experience and schooling with immigrant dummy allows the estimation of a country-specific return to schooling (θ+θim ) and a country-specific return to experience (βExp+βExp2+βimExp+βimExp2). I estimate the above equa- tions separately for each census and for each year-of-entry cohort that can be followed from the immigrants’ initial years in the host country. I define as,exp_it =βim+θimsi

+βimExpExpit+βimExp 2

Exp2_it as the mean log earnings gap of the immigrant i in year

t with schooling sit and experience Expit relative to the native with similar observable

characteristics. The changing of this earnings gap over time will show the earnings growth of immigrants relative to natives.

The wage equation 2.4 was first estimated for the cohort of immigrants aged 25–45 who entered the host country during the ten6 years prior to a census. Then, using the censuses that were conducted after 10 and 20 years, I estimate the same equation for the same cohort but aged 35–55 and 45–65, respectively. I estimate the wage equation on samples from the US and Brazil. Figures 2.4 and 2.5 display entry earnings and growth of earnings for immigrants with average years of schooling in the US and Brazil, respectively. As shown in Figure 2.4, immigrants in the US initially earn lower than natives. The initial

earnings of immigrants who arrived in 1975–1980 are 27% lower than those of comparable natives, and the gap shrinks over time to 5%. A similar pattern of assimilation is observed for immigrants who arrived in 1985–1990. Immigrants on arrival earned 25% less than natives with similar characteristics and the gap had decreased to 14%. This result is in line with the studies in developed countries that document higher earnings growth for immigrants than natives.

Figure 2.4: Assimilation of immigrants in the US

Using the 1990, 2000, and 2010 Brazilian census and equation 2.4 I estimate cross- sectional regression to investigate the earnings growth for immigrants and natives in Brazil. Figure 2.5 shows immigrant earnings relative to those of natives. Initial earnings of both immigrant cohorts are higher than those of the natives. The 1980–1991 arrival cohort with average years of schooling earn 30% more than natives with similar characteristics. After twenty years the earnings, gap between immigrants and natives has shrunk by 4% to 26%, meaning that the earnings growth of natives was higher than the earnings growth of immigrants. The relative earnings path of the 1990–2000 arrival cohort shows a similar trend. Immigrants initially earned 40% more than comparable natives and the gap had decreased to 31% over time. Thus, immigrants in Brazil earn more than natives, but the gap closes over time. This observation in Brazil supports the accumulation of human

capital hypothesis: natives experience higher earnings growth than immigrants due to having a lower opportunity cost of investing in human capital.

Figure 2.5: Assimilation of immigrants in Brazil

Selective out-migration can bias the results. The studies in developed countries document that the least skilled out-migrate at higher rates (e.g. Lubotsky (2007)). I check if there is a selective out-migration of immigrants in observables in Brazil by analyzing the change in average schooling and the fraction of highly educated immigrants as a given cohort stays in the country. Dividing the immigrant cohorts in the population by schooling, I compute the average years of schooling and the fraction of highly educated workers over time. Highly educated workers are defined as individuals with more than 12 years of schooling. The measures of education level of immigrant cohorts were adjusted by the source country weights.

In Appendix, Figure A1 compares the education of immigrant cohorts in Brazil. Average years of schooling of 1980–1990 arrival cohorts didn’t change much with years of stay in Brazil, 12.12, 11.85, 12, respectively in 1990, 2000, and 2010. The fraction of highly educated 1980–1990 arrival cohorts slightly increased over time, 47%, 48%, and 50% in 1990, 2000, and 2010, respectively. Average years of schooling of 1990–2000 arrival cohorts slightly increased with years since migration, but not by much, 12.23 and

12.39 years of schooling in 2000 and 2010, respectively. The fraction of highly educated 1990–2000 arrival cohorts also increased over time, 55% in 2000 and 56% in 2010. A small increase in the average years of schooling for 1990-2000 cohorts and increase in the fraction of highly educated immigrants for both cohorts suggests the out-migration of lower educated immigrants. This would likely bias results in favor of higher wage growth for 1990-2000 arrival cohorts relative to natives in Brazil.