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"A good man out of a good treasure bringeth forth good things, and an evil man out of an evil treasure bringeth forth evil things." Matthew 12:35

Thursday, June 15, 2017

Demographics explain all of the recent differences between native-born and immigrant employment in the US

Being an immigrant in the United States is often difficult. Even under the best of circumstances, immigrants can face challenging cultural and linguistic barriers, to say nothing of separated families, traumatic situations back in their countries of origin, and sometimes discrimination in the US.

So it may come as a surprise to see that, taken at face value, immigrants are more likely than native-born residents to be employed in the US. Bloomberg View columnist JustinFox published a chart using OECD data showing that the foreign-born employment premium in the US is unusual among advanced nations: only Israel, Italy, and the US see positive advantages for foreign-born residents. Even in other relatively high-immigrant countries such as Canada and Australia, native-born residents are still more likely to be employed than foreign-born ones.

Moreover, within the US over time, this immigrant advantage is recent but has grown since it emerged. In 1994, 62.9% of adult native-born Americans were employed (solid blue line below) versus 59.7% of immigrants (solid orange line), giving native-born adults a roughly-3-percentage-point premium. But by 2001, the native-born advantage had disappeared entirely and the foreign-born employment advantage kept growing thereafter. It’s come down a bit from its 2014 peak, when foreign-born Americans were 4.1 percentage points more likely to be employed, but it still stands at 3.5 percentage points as of 2016.

However, face value is deceiving here because the native-born and immigrant populations are very different from one another. For example, a larger proportion of the immigrant adult population is in the prime working-age years of 25-54 years old than native-born adults: 61% versus 47% respectively as of 2016. Also, the prime-age immigrant adult population also skews slightly more male than native-born adults (49.7% versus 49.0%). Since 25-54 year olds, as well as men, are more likely to be employed than others,  it would not be surprising that a subpopulation which skews more prime-age and more male would have higher employment rates.

To see how much demographic differences across a broad range of characteristics explain the wedge between immigrant and native-born employment, I reweighted the Census/BLS Current Population Survey (CPS) so that the proportions of the foreign-born population by age, sex, education, region of the country, and metro status matched those of the native-born population each year of the sample. So, for example, since 47% of the native-born population was ages 25-54 in 2016, I reweighted the immigrant population in the survey so that their 25-54 proportion would also be 47% in 2016. This is a quick way to see visually how much demographics explains the foreign-/native-born wedge. The reweighted immigrant employment line is shown in dashed orange.

As you can see, demographics explain a great deal of the difference between native- and foreign-born employment rates. In fact, beginning around 2006, the reweighted line is almost exactly on top of the native-born line, indicating that the demographic characteristics I controlled for explain virtually all of the wedge. This is in itself pretty interesting: once we control for demographic, geographic, and educational differences, immigrants are just as likely to be employed as native-born workers, no less and no more. It doesn’t mean there aren’t other factors working against immigrants, or to their advantage. But it does suggest that once we control for basic characteristics of the population, all these other factors are a wash, at least since 2006.

But note that demographics don’t fully explain the employment wedge before 2006, and in fact, controlling for demography makes immigrant employment rates consistently lower than native-born rates before then. It may be because the types of skills brought to these shores were dramatically different before then even after controlling for education, but it’s hard to adjust for this (the CPS for example usually doesn’t record the last occupation or industry of people out of the labor force, which would be one way of testing if the skill mix of the entire immigrant population had shifted). This may also relate to changes in where immigrants have been coming from, e.g. Latin America versus Asia, but it’s not clear beforehand how this should affect employment, if at all. And of course, discrimination may play a role. Regardless, the lead-up to 2006 remains an open and potentially interesting story, and I may have more to add in a later post.

In the meantime, know that when it comes to the labor market, foreign-born Americans look a lot like native-born Americans.

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