1. Economics of Immigration

2. The Age-Earnings Profiles of Immigrant and
Native Men in the Cross Section
9,000 Immigrants
8,000
Annual Earnings
(1970 Dollars)
Natives
7,000
6,000
5,000
4,000
20 25 30 35 40 45 50 55 60 65
Age

3. The Decision to Immigrate
• Skills vary across country-of-origin (or source
country) immigrant groups.
• The general rule: Workers decide to immigrate
if U.S. earnings exceed earnings in the source
country.
– The decision ultimately depends on individual
skills and the returns to those skills in the source
and destination countries.

4. Cohort Effects and the Immigrant Age-
Earnings Profile
Dollars
C
The cross-sectional
P
1960 Wave age-earnings profile
P* erroneously suggests
P that immigrant
Q
1980 Wave earnings grow faster
and Natives
than those of natives.
Q Q*
R
2000 Wave
R
R*
C
Age
20 40 60

5. The Wage Differential between Immigrants and
Native Men at Time of Entry
0
-0.1
Log wage gap
-0.2
-0.3
-0.4
1955-1959 1965-1969 1975-1979 1985-1989 1995-2000
Year of entry

6. Evolution of Wages for Specific Immigrant
Cohorts over the Life Cycle
Relative wage of immigrants who arrived
when they were 25-34 years old
0.1
Arrived in 1955-59
0
Log wage gap
-0.1
Arrived in 1965-69
-0.2
Arrived in 1975-79 Arrived in 1985-89
-0.3
-0.4
1960 1970 1980 1990 2000
Year

7. The Distribution of Skills in the Source
Country
Frequency
NegativelySelected
-
Immigrant Flow
Positively-Selected
Immigrant Flow
s N s
P
Skills
The distribution of skills in the source country gives the frequency of
workers in each skill level. If immigrants have above-average skills, the
immigrant flow is positively selected. If immigrants have below-
average skills, the immigrant flow is negatively selected.

8. The Self-Selection of the Immigrant
Flow
Dollars Dollars
Positive Selection
U.S. Source
Country
Source U.S.
Country
Do Not Move Do Not
Move Move Move
sP Skills sN Skills
(a) Positive selection (b) Negative selection

9. Policy Application:
Economic Benefits of Migration
• The immigrant surplus is a measure of the
increase in national income that occurs as a
result of immigration. (The surplus accrues to
natives.)
• Immigration raises national income by more
than it costs to employ immigrants.

10. The Impact of a Decline in U.S.
Incomes
Dollars Dollars
U.S.
Source
Country
U.S.
Source
Country
sP  sN sN
Skills Skills
(a) Positive selection (b) Negative selection

11. Decline in U.S. Incomes
• The previous graphs shows that when U.S.
incomes decrease (shift down in the returns-
to-skills curve):
– Fewer workers migrate to the U.S.
– The type of selection (positive vs. negative)
doesn’t change.

12. Policy Application:
Labor Flows in Puerto Rico
• The case study of Puerto Rico confirms an important
insight of the Roy model: skills flow to where they
receive their highest return.
– The rate of return to skills is much higher in Puerto Rico
than in the United States, so the Roy model predicts that a
relatively higher fraction of the least-educated Puerto
Ricans would leave the island.
– As of 2000, nearly 45 percent of Puerto Rican-born
working age men who lacked a high school diploma had
moved to the United States. In contrast, only 30 percent of
working age men with at least a college education had
moved to the United States.

13. Earnings Mobility between 1st and 2nd
Generations of Americans, 1970-2000
0.6
Relative wage, 2nd generation, 2000
Belgium
Poland India
Philippines Italy UK Germany
Cuba China Sweden
0
Honduras
Mexico Haiti
Dominican
Republic
-0.6
-0.4 0 0.4
Relative wage, 1st generation, 1970