Native‐Migrant Wage Differential Across Occupations: Evidence from Australia
| DOI | http://doi.org/10.1111/imig.12236 |
| Author | Jaai Parasnis,Asad Islam |
| Date | 01 June 2016 |
| Published date | 01 June 2016 |
Native-Migrant Wage Differential Across
Occupations: Evidence from Australia
Asad Islam* and Jaai Parasnis*
ABSTRACT
We investigate wage differential by migrant status across white-collar and blue-collar occupa-
tions in Australia. Migrants are observed to have a higher wage; this difference, however, does
not exist once we control for covariates. The unconditional wage differential varies over wage
distribution as well as by occupation. Significant wage differentials are found above the med-
ian: positive for white-collar workers and negative for blue-collar workers. Using recently
developed decomposition methods based on Firpo, Fortin, and Lemieux (2009) we decompose
wage differentials across their distribution. Overall, the wage advantage of migrants reflects
their superior labour market characteristics, and in particular, their levels of education. We find
that English language proficiency plays an important role in wage differences among immi-
grants from non-English speaking countries.
INTRODUCTION
The assimilation of immigrants in the labour market is an important measure of success both for
the immigrants and for the receiving country. Immigrants typically earn lower wages than natives,
although recent evidence points to improving labour market outcomes for immigrants in Australia.
One out of every four people currently living in Australia was born abroad. Immigration policies
increasingly aim to select immigrants with favourable labour market characteristics. In Australia,
since the 1970s, the immigration policy increasingly specified an explicit set of criteria targeting
age, skills (in terms of education, occupation and experience) and language proficiency. Recent
years have seen an increased influx of immigrants from non-English-speaking countries in Africa
as well as in South and Eastern Asia. The policies that determine the selection of immigrants have
evolved over time to favour those who are young, more qualified and experienced, more fluent in
English, and who possess the skills that are in demand among employers (Guven and Islam, 2015).
Skilled migrants formed about 20 percent of the total immigration intake during the early 1990s,
rising to about 65 per cent by 2010. However, support for immigration, and the determination of
its appropriate magnitude, is the subject of continuing public debate. That concern is not restricted
to Australia but lies at the heart of the debate about immigration in many countries –including
most European nations, the US and Canada (Bauer et al., 2000; Scheve and Slaughter, 2001;
Simon and Sikich, 2007).
The emphasis on skills in admitting immigrants should be reflected in a reduction in the migrant
wage disadvantage in the labour market, particularly in white collared occupations. However, recent
evidence suggests that there is no reduction in the wage gap. Despite a similar focus on skilled
migration policy in Canada, Green and Worswick (2012) document the poor labour market
* Department of Economics, Monash University, Australia
doi: 10.1111/imig.12236
©2016 The Authors
International Migration ©2016 IOM
International Migration Vol. 54 (3) 2016
ISSN 0020-7985Published by John Wiley & Sons Ltd.
outcomes of recent cohort of immigrants. Clarke and Skuterud (2012) find that immigrants in Aus-
tralia face a smaller employment and earnings disadvantage than immigrants in Canada. New Zeal-
and is another country with a points-based skilled migration policy. Stillman and Mar
e (2009) find
that immigrant men in New Zealand face a relative wage disadvantage. In a review of the skilled
migration policy, Tani (2014) points out that while such a system succeeds in selecting economi-
cally desirable migrants, it cannot prevent poor labour market outcomes for immigrants. Hence,
understanding the extent and drivers of immigrants’success in Australia is important to assess
whether this experience can be replicated in other countries.
In this article, we investigate the extent of the earnings differences among different groups of
migrant and native workers in Australia. The total earnings gap between native and migrant work-
ers in Australia was previously investigated by Chiswick and Miller (1985), Beggs and Chapman
(1988) and McDonald and Worswick (1999), among others. More recent studies have focused on
comparative analysis: Miller and Neo (2003) compared earnings gaps in Australia and the USA,
while Antecol et al. (2003) compared native–migrant earnings across Australia, Canada and the
USA. The common findings can be summarised as follows: (i) migrants in Australia earn less than
their native counterparts; (ii) the earnings disadvantage faced by migrants in Australia is small,
especially relative to Canada and USA
1
(iii) while there is evidence of labour market assimilation,
with migrant earnings increasing with the number of years spent in Australia, the catch-up is slow.
Chiswick et al. (2005) find similar assimilation pattern in terms of occupational ladders. In a recent
study, Clarke and Skuterud (2012) compared the economic performances of migrants in Canada
and Australia over the period 1986 to 2006. They found that the better labour market conditions in
Australia, together with the difference in the source country of migrants, led to a smaller migrant
disadvantage than in Canada.
This article differs from existing studies in that we examine the wage differences by occupational
sectors and over the entire distribution. Migrants differ by gender, culture and language, education
and training, vocational skill and in terms of many other attributes. These characteristics may influ-
ence their entry into the labour market of the host country, their performance in the various sub-
markets, and also their wages and employment. In recognition of that heterogeneity, we examine
whether the individual characteristics or returns to the characteristics contribute to reducing the
wage differences. We use the method based on the Recentered Influence Function (RIF) projections
developed by Firpo et al. (2007, 2009). The RIF method generates unconditional quantile esti-
mates, while the commonly used Quantile Regression (QR) gives conditional quantile estimates.
Using the RIF unconditional quantile estimates, we decompose the wage gap between migrants and
native-born in each occupation at different points of the wage distribution. This enables us to
explore the contributions of differences in labour characteristics and differences in labour market
returns to the observed gap, over the entire distribution –not just at the means. These decomposi-
tions are important for an understanding of the effects and limitations of the policy settings. Immi-
gration policies can influence the composition of immigrant populations by selecting individuals
with favourable labour market characteristics, but returns from these characteristics are determined
through complex interactions of the economic and structural aspects of local labour market institu-
tions.
This article contributes to our understanding of the native–migrant wage differential in Australia
in the following ways. We account for the occupational differences between white-collar workers
and blue-collar workers. We focus on skilled and unskilled workers separately considering that
Australian immigration policy has become increasingly focused on migrant skill (Islam and Faus-
ten, 2008). We examine the contribution of covariates to the explained and unexplained wage gap
across the entire distribution. We then explore whether the country of origin still matters and find
significant wage disparity between migrants from English speaking countries (ESB) and non-
English speaking countries (NESB). We examine the role of English language proficiency in
explaining the wage gap among migrants from Non English Speaking countries (NESB). Language
90 Islam and Parasnis
©2016 The Authors. International Migration ©2016 IOM
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