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Immigrant–native wage gap in Europe: the role of cognitive skills and their use at work

Maryna Tverdostup (School of Economics and Business Administration, Faculty of Social Sciences, University of Tartu, Tartu, Estonia) (Department of Public Finance, Faculty of Economics and Statistics, University of Innsbruck, Innsbruck, Austria)
Tiiu Paas (School of Economics and Business Administration, Faculty of Social Sciences, University of Tartu, Tartu, Estonia)

International Journal of Manpower

ISSN: 0143-7720

Article publication date: 16 January 2019

Abstract

Purpose

The purpose of this paper is to address the role of cognitive skills and extent of skill use at work in explaining the immigrant–native wage gap in Europe. The study targets immigrant–native disparities in literacy and numeracy cognitive skills, as important, yet not exhaustive factor behind immigrants’ wage penalty.

Design/methodology/approach

The research relies on the Program of International Assessment of Adult Competencies data for 15 European countries. The empirical analysis employs multivariate regression analysis and incorporates the full set of plausible values for each skill domain, to correctly measure cognitive skills. To estimate standard errors, the authors employ Jackknife replication methodology with 80 replication weights and final population weight.

Findings

The authors document that, on average, immigrants achieve substantially worse scores in literacy and numeracy test domains. Only highly educated immigrants tend to improve their skills over time in host countries. The results of wage gap analysis indicate that having cognitive skills, demographic profile and occupation category comparable to natives does not yield comparable wage rate. The remaining wage gap results from the systematic differences in skills application at work, as immigrants use their skills to lower extent, relative to natives.

Originality/value

The research employs a novel measure of productive human capital, which accounts for cognitive skills in literacy and numeracy domains, and frequencies of skill use at work. It allows to more precisely evaluate the immigrant–native disparity in human capital application and its reflection on the wage rate.

Keywords

Acknowledgements

The authors are very thankful to Jaan Masso, Hakan Eratalay, Andres Võrk, Janette Walde and Helena Fornwagner for their feedback and valuable suggestions on earlier versions of the paper. Financial support from Dora Plus 1.2 grant and Archimedes foundation, as well as the Estonian IUT20-49 project “Structural change as the factor of productivity growth in the case of catching up economies” is gratefully acknowledged.

Citation

Tverdostup, M. and Paas, T. (2019), "Immigrant–native wage gap in Europe: the role of cognitive skills and their use at work", International Journal of Manpower, Vol. 40 No. 1, pp. 154-175. https://doi.org/10.1108/IJM-03-2018-0087

Publisher

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Emerald Publishing Limited

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