Immigration and wage changes of high school dropouts

Monthly Labor Review, Oct, 1997 by Maria E. Enchautegui

Some research shows that the wage gap between Latino and non-Latino natives grew during the 1980s. In California, this growing wage gap has been attributed to the increasingly higher value of skills, which left Latinos, many of whom have low levels of education, behind.(9) For Mexican-Americans, most of whom are also in California, educational deficits explain most of the wage differential relative to natives.(10) By focusing on low-skilled workers and thereby holding educational levels constant, and by desegregating by geographic area, we see that the figures examined in this article show that the wage gap between natives and immigrants increased among high school dropouts.

The level of data aggregation used in our analysis does not allow us to isolate the factors responsible for the large wage gap between low-skilled natives and low-skilled immigrants in areas of high immigration. The figures on wage growth demonstrate that the increase in the area-specific wage gaps was due to the large deterioration in the wages of low-skilled immigrants. The area-specific wages of natives also declined, but not as much as those of immigrants. There is evidence that those whose labor market outcomes are most affected by immigration are other immigrants themselves.(11) Thus, it is possible that the high volume of low-skilled immigration is responsible for the poor wage performance of immigrants relative to natives in high-immigration areas. A concentration of immigrants intensifies competition for jobs, especially among immigrants themselves, producing the wage declines and the low immigrant-to-native wage ratios observed in these areas.

Decomposition of the change in wages

The decline in wages of low-skilled workers that occurred in the last decade could reflect a compositional change, whereby the increase in the proportion of immigrant workers among the low skilled brings wages down because immigrants have lower wages than natives. Alternatively, wages of low-skilled workers may have decreased, not because there are more immigrants, but because the wages of both immigrants and natives dropped. This may have occurred for either of two reasons: industrial, technological, and international trade shifts, or an increased supply of low-skilled workers. In the Nation, however, the supply of high school dropouts declined by 14 percent during the period under analysis. To sort out the contribution of increased immigration to average earnings, a decompositional analysis of wage changes, using the following formula, was carried out:

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] Here, W stands for annual earnings, [Pi] denotes proportions in the work force, and the subscripts indicate the year (1979 or 1989) and the nativity of the worker ("fb" for foreign born--that is, immigrant--and "n" for native born). This formula decomposes the total wage change to changes due to the proportions of natives and immigrants in the work force, keeping wages constant, and changes due to the wages of each group, keeping their proportions constant. Results for the decompositional analysis appear in table 3.