In 2018, 23,000 refugees became legal residents in the US, representing 13% of the country’s legal immigrants. Refugees and family-sponsored immigrants need more time than employer-sponsored immigrants to develop into productive workers in their host country. On average, the wages of immigrants on entering a new country are below the wages of native-born workers; however, as they attain country-specific skills, their wages eventually approach those of native-born workers. Government policy can facilitate assimilation and increase immigrants’ overall productivity.
Human capital theory posits that wages increase with worker productivity, and productivity is enhanced through investments in labor. Policies based on this theory help new immigrants obtain skills specific to their host country, such as language, education, and job training, and assist with job placement. Because refugees are more likely than other immigrants to become permanent residents, investment in their host country specific skills is particularly important.
Segmented labor market theory assumes that labor markets are never completely open to immigrants; some are eligible to work, others are not. Policies based on segmentation theory include “international credentialing” and removal of employment barriers. Governments can also promote assimilation by lowering the costs of naturalization. Naturalization signals to employers that immigrant workers know the local language and are familiar with local customs and institutions. It helps break the institutional barriers that confine some immigrants to lower paying jobs.
Policies that address human capital investment in immigrants include language policies and active labor market policies (ALMP). But they have had mixed success. Language programs in Norway and Denmark increased immigrant employment but had no impact on wage assimilation. But, if language training is focused on job-related communication or is combined with work, employment and wages improve. Examples of ALMP programs include job training and wage subsidies. Among these programs in OECD countries, only wage subsidy programs, such as Denmark’s step program, have been found to increase immigrant employment.
Naturalization is a powerful tool to break employment barriers for immigrants. Germany’s citizenship reform of 2005 reduced the residency requirement for naturalization from 15 to eight years; the disparity in wages between immigrant and native women fell, and immigrants obtained more permanent contract work in Germany. In contrast, the Trump administration’s plan to eliminate the Deferred Action for Childhood Arrivals (DACA) in the US (currently before the US Supreme Court for adjudication), would deny illegal immigrants brought to the US as children (“Dreamers”) a two-year reprieve from deportation and the chance to obtain a work visa. This policy, if fully implemented, will likely reduce the development of immigrants’ human capital and assimilation in the US labor market. Overall, US productivity will be negatively affected if additional barriers to the employment of Dreamers are erected.
Immigrants earn less than native workers at entry, but relative wages improve with time spent in their host country. Governments and local communities can facilitate the wage and employment assimilation of immigrants through the implementation of effective programs. My review of the policy literature suggests interventions that help reduce barriers rather than impose new restrictions on legal employment of immigrants are the way forward. Overall productivity is improved if immigrants are better assimilated into their host country’s labor market.
© Kathryn H. Anderson
Read Kathryn H. Anderson and Zhen Huang’s IZA World of Labor article “Can immigrants ever earn as much as native workers?”
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