Immigrants’ Wage Growth and Selective Out‐Migration
| Date | 01 October 2019 |
| Author | Govert E. Bijwaard,Jackline Wahba |
| Published date | 01 October 2019 |
| DOI | http://doi.org/10.1111/obes.12295 |
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©2019 TheAuthors. OxfordBulletin of Economics and Statistics published by Oxford University and John Wiley & Sons Ltd.
Thisis an open access article under the ter ms of the CreativeCommons Attribution License, which permits use, distribution and reproduction in any medium, provided
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OXFORD BULLETIN OF ECONOMICSAND STATISTICS, 81, 5 (2019) 0305–9049
doi: 10.1111/obes.12295
Immigrants’ Wage Growth and Selective
Out-Migration*
Govert E. Bijwaard†,‡ and Jackline Wahba‡,§
†Netherlands Interdisciplinary Demographic Institute, NIDI-KNAW/University of Groningen,
2502 AR,The Hague, The Netherlands (e-mail: bijwaard@nidi.nl)
‡IZA, Bonn, Germany
§University of Southampton, Southampton, SO17 1BJ, UK (e-mail: j.wahba@soton.ac.uk)
Abstract
This paper examines immigrant wage growth taking selective out-migration into account
using administrativedata from the Netherlands. Addressing a limitation in the previous liter-
ature, we address the potential endogeneityof immig rants’labour supply and out-migration
decisions on their earning profiles using a correlated competing risk model. Wedistinguish
between labour and family migrants, given their differentlabour market and out-mig ration
behaviours. Our findings show that accounting for selective labour supply is as important
as accounting for selective out-migration. Controlling only for out-migration selectivity
would underestimate immigrants’ wage growth, whilst controlling only for labour market
selectivity would overestimate their wage growth. This shows that different selections are
important for different types of migrants.
I. Introduction
How do immigrants fare in the host country? Both academics and policy makers are inter-
ested in immigrants’ economic performance in the host country, and immigrants’earnings
are commonly used as a measure of their productivity and contribution to the economy. It
is therefore not surprising that some host countries use earnings as a measure to identify
‘the best and the brightest’. For example, both the Netherlands and the UK use earning
thresholds to identify highly skilled immigrants, and more recently, the UK introduced
further earning threshold requirements for immigrants wishing to settle permanently in
the UK.
Following Chiswick (1978) seminal work, a sizable body of literature has examined
immigrant performance in the host country, focusing on immigrant earnings and their
growth. This literature has sufficiently evolved to deal with several empirical challenges,
JEL Classification numbers: F22, J61, C41.
*Financial support from the NORFACE research programme on Migration in Europe – Social, Economic, Cultural
and PolicyDynamics and the Economic and Social Research Council (RES-167-25-0678) is gratefully acknowledged.
We thank Statistics Netherlands, and Han Nicolaas in particular, for data support. We thank the participants of the
7th Annual Conference on Immigration in OECD Countries for their helpful comments.
1066 Bulletin
such as arrival cohort effects (see Borjas, 1985) and time effects (e.g. Anteco, Kuhn and
Trejo,2006). Another challenge has been dealing with the non-randomness of out-migration
given the limitation of available data. Although recent studies using longitudinal data are
able to control for unobserved heterogeneity, such data still pose a limitation in terms of
identifying the wage growth of immigrants who remained in the host country. Not only is
return migration inferred rather than observed and is typically confounded with attrition
given the absence of administrativedata collected by immigration authorities, but selection
is also assumed to occur on time-constant unobservables (see Dustmann and G¨orlach, 2015
for an excellent review of this literature).
Although this literature has developed to examine immigrants’ performance in the
US (see e.g. Hu, 2000; Lubotsky, 2007; Biavaschi, 2016) and in many other countries
where panel data and longitudinal data exist (e.g. Pischke, 1992), existing studies havenot
addressed the potential endogeneity of wages, labour supply and out-migration. Indeed,
immigrants may leave because of their wagelevels or wage growth. While the unsuccessful
ones could be those who leave due to a lack of employment and negative wage growth,
it could also be the successful migrants who decide to leave, having experienced positive
wage growth and reached their target savings.We address this challenge which has hitherto
been overlooked in this literature – namely, exploring the notion that out-migration might
be correlated with the level of immigrant earnings. Hence, our focus in this paper is on
how failing to account for out-migration selectivity and wage endogeneity would bias the
estimates of immigrant earnings growth.1
Our main contribution is to address this potential endogeneity betweenwages/employment
and the out-migration choice when estimating immigrant earnings. We take into account
the previously unexplored interdependence between three important factors, namely, the
labour market status of the migrant since arrival, his/her wages in the country of immi-
gration and the out-migration decision, as they can all affect the estimated wage growth
of current immigrants. Unlike existing literature and noted as a strong assumption by
Dustmann and G¨orlach (2015) in their recent review, we do not assume that immigrants’
decisions on labour supply are not determined by their out-migration plans. In particular,
we study what the growth in mean earnings of immigrants who arrived between 1999 and
2007 and of those who stayed in the host country would have been if there had been no
selective out-migration. We use administrative data from the Netherlands to understand
how selective out-migration as well as the endogeneity of the labour market status and
wages influence immigrant wage growth. We observe all immigrants who entered the
country between 1999 and 2007, as well as their motive for migration: whether for labour
migration or otherwise, the timing of return in case of out-migration, the exact detailed
(monthly) information on their labour market status and their income since their arrival.
Furthermore, different types of migrants, for example, labour or family migrants, be-
have differentlyin the labour market and have different migration behaviour (see Bijwaard,
2010). Census data and standard panel surveys do not distinguish between migrant types.
Hence, previous studies have been unableto distinguish between the behaviour of different
types of migrants, rather examining them as a homogeneous group. In the Netherlands –
as in other European countries – family migrants represent a higher proportion of total
1We do not compare immigrant and nativeear nings.
©2019 The Authors. Oxford Bulletin of Economics and Statistics published by Oxford University and JohnWiley & Sons Ltd.
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