Revisiting the Family Investment Hypothesis

The family investment hypothesis predicts that credit-constrained immigrant families adopt a household strategy for financing post-migration human capital investment in which the “primary worker” engages in investment activities and the other partner undertakes labor market activities which finance current consumption. Empirical tests of this hypothesis have assumed that the primary worker is the male partner. A substantial portion of immigrants to Australia are admitted on the basis of a “points test” in which points are awarded for labor market skills. Once an principal applicant applies for and is granted a visa, dependent family members are automatically granted visas as well. Thus principal applicant status provides an alternative way to identify primary and secondary workers in immigrant households. We exploit this idea to reevaluate the family investment hypothesis.