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PETER S. LI
University of Saskatchewan Saskatoon, Saskatchewan
his note explains why Waslanders (2002) reinterpretations of Li (2001) are misleading, and why the original interpretation in Li is preferable. In the original paper, Li uses a simple design to estimate immigrants educational worth. First, nativity and age of immigration are used to estimate four types of degree holders, and the four types are further cross-classified by race and gender on the grounds that they interact with the degree a person holds. Second, the resulting 16 groups are compared in gross (actual) earnings, and then in adjusted (net) earnings by controlling for 11 other variables, including years since landing in Canada, which is coded zero for native-born. Third, the residual earnings disparity between native-born Canadian degree-holders and immigrant foreign degreeholders of the same gender and racial group is decomposed into two sources, immigrant status and foreign degree. The decomposition also follows a straightforward logic by first comparing the disparity between native-born Canadian degree-holders and immigrant Canadian degree-holders, and attributing the difference to immigrant status, and then comparing the disparity between immigrant Canadian degree-holders and immigrant foreign degree-holders and attributing the difference to foreign degree. Waslander uses the following strategy. First, he calculates the change in earnings differentials between three pairs of groups; the change is from gross to net earnings (Waslander, Table 3). For example, native-born Canadian degree-holders earned $4,236 less than immigrant Canadian degree-
holders in gross earnings and $8,824 more in net earnings as Li reports, and Waslander combines these two numbers in order to see which variables used in Lis model contribute to this change. Second, Waslander uses the coefficients in Lis model to calculate what he calls components of change, and concludes that the variable years in Canada is responsible for a large part of the change. Third, he then recalculates the earnings disparity between the three pairs of groups without adjusting for years in Canada and presents results to claim that foreign university degree may be more heavily discounted in the Canadian labour market than Li showed, and this may be the case for all immigrants with foreign degrees, not only for visible minorities immediately after entry.
322 Peter S. Li
TABLE 1
Adjusted Earnings of 16 Comparative Groups in Models with and without Years in Canada
Nativity/Age of Immigration
Number
Adjusted Earnings in Model with Years in Canada % Earnings of White Native-born Male [4]
Adjusted Earnings in Model without Years in Canada % Earnings of White Native-born Male [6]
[1] Grand mean White male Native born Foreign born Immigrated between ages 012 Immigrated between ages 1324 Immigrated age 25 and over Visible minority male Native born Foreign born Immigrated between ages 012 Immigrated between ages 1324 Immigrated age 25 and over White female Native born Foreign born Immigrated between ages 012 Immigrated between ages 1324 Immigrated age 25 and over Visible minority female Native born Foreign born Immigrated between ages 012 Immigrated between ages 1324 Immigrated age 25 and over
[2]
0 35 26 16
100 83 83 82
100 102 97 90
0 24 17 11
89 74 74 75
87 87 83 67
0 33 23 13
82 64 63 59
82 81 74 65
0 23 15 10
83 69 63 52
80 82 71 56
Source: Column [3] is from Table 3 in Li (2001); Column [4] is calculated from column [3]; Column [5] shows results in the model without Years in Canada; and Column [6] is calculated from Column [5].
DE
POLITIQUES,
Immigrants Educational Worth and Years in Canada: A Reply simply because the former has been in Canada longer. The reason that years in Canada contributes significantly to the change in difference from gross to net earnings, as Waslander discovers, is also simple. Table 1 shows that, due to the overwhelming number of cases for native-born degree-holders, and due to their being coded as zero in years in Canada, adjusting this variable represents a downward adjustment for immigrants toward the mean, which, however, is not the same as adjusting to immediately after entry as Waslander interprets. Not adjusting it but adjusting for other variables simply means that immigrants earnings, compared to those of the native born, is confounded by duration in Canada as well as possible credential devaluation, and that white immigrants would have higher earnings than visible minority immigrants because the former have been in Canada longer. To appreciate how years in Canada affects earnings of the 16 groups, it is necessary to estimate models actually with and actually without the variable years in Canada. Table 1 provides in column 3, the adjusted earnings deviations of the 16 groups, that is, with years in Canada in the model, and in column 5, the adjusted deviations without years in Canada. Two observations are worth noting. First, the differences tend to be smaller in the model without years in Canada between, for example, native-born degree-holders and immigrant degreeholders who immigrated after age 24 of the same gender and race group because immigrants cumulative years in Canada improved their earnings. It cannot be determined whether immigrants higher net earnings are a result of more cumulative years in Canada, or less credential devaluation. Second, the earnings of white immigrants are higher than visible minority immigrants in the model without adjusting for years in Canada because the former have been in Canada longer. Column 6 expresses earnings as a percentage of earnings of white native-born males in the model excluding years in Canada, while column 4 shows percentages in the
323
model including years in Canada. For example, in the model without years in Canada, white male immigrants who immigrated after age 24 earned 90 percent of what white native-born males earned, while visible-minority immigrants who immigrated in the same age earned 67 percent a difference of 23 percent. In the model, which adjusts for years in Canada, the difference is only 7 percent. This observation holds for all comparisons between white immigrants and visible-minority immigrants.
IN
324 Peter S. Li
TABLE 2
Decomposing Net Earnings Disadvantage of Immigrants Educational Credentials in Models with and without Years in Canada
Disadvantage Due to
White female
Native-born Canadian degree-holders and immigrant Canadian degree-holders Immigrant Canadian degree-holders and immigrant foreign degree-holders Native-born Canadian degree-holders and immigrant foreign degree-holders Immigrant status Foreign degree Both $9,280 $2,399 $11,679 $252 $7,932 $8,184
DE
POLITIQUES,
Immigrants Educational Worth and Years in Canada: A Reply using single-year, cross-sectional data to estimate the annual catch-up rate of immigrants (regression coefficient for years in receiving country), along with a dummy-coded variable that measures immigrant status. Borjas argues that the catch-up rate calculated in this manner (dividing coefficient of immigrants status by coefficient of years in receiving country) assumes recent immigrants will perform as well as earlier arrivals, and it overestimates the annual improvement of recent immigrants by using the earnings outcomes of immigrants in earlier cohorts in the estimation. In Lis original study, no attempt is made to calculate the catch-up years. If indeed the more superior earnings performance of earlier immigrants (in this case white immigrants) tends to inflate the annual improvement in earnings of later immigrants (in this case visible minorities), it would suggest that, if the true effect of years in Canada can be calculated for visible minorities without the potential inflation, the earnings of visible minority immigrants would likely be even lower than that of white immigrants. Borjass
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warning suggests that, not only the years in receiving country must be adjusted in earnings equations, but it has to be estimated with more refined panel data or longitudinal data in order not to overestimate the annual improvement of recent arrivals.
REFERENCES
Borjas, B.J. 1985. Assimilation, Changes in Cohort Quality, and the Earnings of Immgirants, Journal of Labour Economics 3(4):463-89. ______ 1994. The Economics of Immigration, Journal of Economic Literature 32(December):1667-1717. Chiswick, B. R. 1978. The Effect of Americanization on the Earnings of Foreign-Born Men, Journal of Political Economy 86(5):897-921. Li, P.S. 2001. The Market Worth of Immigrants Educational Credentials, Canadian Public Policy/Analyse de Politiques 27(1):23-38. Waslander, B. 2002. The Market Worth of Immigrants Educational Credentials: A Comment, Canadian Public Policy/Analyse de Politiques 28(2):315-20.