Economic Assimilation of Foreign-Born Workers in the United States: An Overlapping Rotating Panel Analysis

This paper presents new evidence on whether foreign-born workers assimilate, which we define as the degree to which the wages of foreign-born workers approach those of comparable native-born workers with additional time spent in the United States. The key econometric challenge is to separate wage growth due to assimilation from composition effects. The composition of immigrant population varies over time due to variation in initial skill levels at year of entry and also because of selective return migration. While much of the existing literature relies on cross-section data, we use longitudinal data on native-born and foreign-born populations which allows us to control for initial skill composition. An advantage of using the Current Population Survey (CPS) is that one can construct cross-section samples by ignoring its longitudinal structure. We compare cross-section and panel models of foreign-native gap in wage growth, and the results suggest that analyses based on repeated cross-section studies are biased upward by fixed unobserved heterogeneity. Controlling for this heterogeneity reverses the conventional result of economic assimilation. Overall, we find little evidence of a narrowing of the foreign-native gap in economic performance. New immigrants from Central and South America earn lower wages than natives, and this gap widens with time in the U.S. labor market. The wages of new immigrants from Europe and Asia exceed those of natives and there is no strong evidence of convergence. We account for sample attrition in the presence of nonrandom outmigration and find that our results are robust to panel attrition.