It is a well-known fact that recent immigrants earn relatively low wages. Howeve

Question

It is a well-known fact that recent immigrants earn relatively low wages. However, their wages rise during their time in their new country. After about 15 years in the U.S., immigrants' wages are comparable to those of native workers living in the same area-and after that, their wages actually exceed those of natives by about 3 percent^1. This finding is all the more remarkable in light of the fact that natives have on average one more year of schooling than immigrants do. In empirical studies of discrimination, it is common to argue that discrimination is at work when one group appears to have more skills (or at least as much skill) as another, yet receives a lower wage. Given the facts above, one might then conclude that employers discriminate against native workers and in favor of immigrants. Doesn't that seem hard to believe? Suppose you performed an Oaxaca decomposition on the 3 percent difference in wages between native-born and immigrant men with more than 15 years of experience. Would the decomposition find that the difference in wages attributable to discrimination against natives (rather than differences in education) is less than 0 percent (negative), between 0 and 3 percent, exactly 3 percent, or greater than 3 percent? Can you think of any explanations other than discrimination for the wage differential?

Explanation / Answer

a) It would be exactly 3 percent. Oaxaca decomposition explains the wage differential between 2 groups of workers. One important distinction, however is that not all 3% is owing to between group (native vs immigrant) There is always a part that is not explained but contribute to overall difference.

b) Yes. Immigrants are perhaps more hard working and/or inclined to succeed in a foreign country and prove they can adapt to new culture etc.

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