Why third generation immigrants earn less

The Economic Logic blog has posted on an interesting new study by Vincenzo Caponi which finds that third generation Mexican immigrants  (particularly males)to the US earn significantly lower wages than second generation Mexican immigrants.

The table below shows the evolutions of earnings across all generations. It reports results for men and women using two definitions: the standard definition and the stricter definition. The standard definition includes those with at least one parent born in Mexico while the stricter definition includes those who not only have at least one parent born in Mexico, but also consider themselves Mexican.

 

Economic Logic concludes the following:

The way I understand it is that there is selection in migration decisions: only those with higher than average abilities (not necessarily realized human capital) go. Their children inherit some of those traits, and thus have higher than average abilities and human capital. While the first generation was not able to fully exploit this, while the second does, wages go up. But abilities of the third generation continue regressing to the mean, and the selection effect erodes. This generation ends up with lower human capital than their parents and thus lower wages.

Highest Earning Dead Celebrities

Forbes has released its annual list of the top-earning dead celebrities. To make the list, a dead celebrity must have earned at least $6 million in the past year. Missing from this year’s list is Marilyn Monroe, James Dean, and Steve McQueen. At number one: a fashion designer.

1. Yves Saint Laurent: $350 million
2. Richard Rodgers and Oscar Hammerstein: $235 million combined
3. Michael Jackson: $90 million
4. Elvis Presley: $55 million
5. JRR Tolkien: $50 million
6. Charles Schulz: $35 million
7. John Lennon: $15 million
8. Dr. Seuss (Theodor Geisel): $15 million
9. Albert Einstein: $10 million
10. Michael Crichton: $9 million
11. Jimi Hendrix: $8 million
12. Aaron Spelling: $8 million
13. Andy Warhol: $6 million

The Rising Costs of Attending College

Catherine Rampell at Economix has a post on a new College Board report that shows that “the average published (sticker price) annual cost of tuition and fees at four-year public colleges rose 6.5 percent from last year, to $7,020.”

So the question is raised: what accounts for the rise in college tuition? I briefly touched on this issue in a previous post:

Thomas Sowell explains that,

In any kind of economic transaction, it seldom makes sense to charge prices so high that very few people can afford to pay them. But, with the government ready to step in and help whenever tuition is “unaffordable,” why not charge more than the traffic will bear and bring in Uncle Sam to make up the difference?

Education, like all other products, follows the law of supply and demand. If the price increases beyond people’s means,  demand will fall and consumers (students) will purchase less of the product (education). Government intervention skews this relationship. In subsidizing higher education, universities can get away with increasing tuition since the price is covered by a third party. Would government remove education subsidies, tuition would likely drop.

To read Thomas Sowell’s “The Economics of College” see Part I, Part II and Part III.

Recent Trends in the Earnings of New Immigrants to the United States

George J. Borjas and Rachel M. Friedberg of the National Bureau of Economic Research have a new study on the trends in earnings of new immigrants to the U.S.

This paper studies long-term trends in the labor market performance of immigrants in the United States, using the 1960-2000 PUMS and 1994-2009 CPS. While there was a continuous decline in the earnings of new immigrants 1960-1990, the trend reversed in the 1990s, with newcomers doing as well in 2000, relative to natives, as they had 20 years earlier. This improvement in immigrant performance is not explained by changes in origin-country composition, educational attainment or state of residence. Changes in labor market conditions, including changes in the wage structure which could differentially impact recent arrivals, can account for only a small portion of it. The upturn appears to have been caused in part by a shift in immigration policy toward high-skill workers matched with jobs, an increase in the earnings of immigrants from Mexico, and a decline in the earnings of native high school dropouts. However, most of the increase remains a puzzle. Results from the CPS suggest that, while average entry wages fell again after 2000, correcting for simple changes in the composition of new immigrants, the unexplained rise in entry wages has persisted.

Earnings of Young College Grads vs College Costs

Business Week economist Michael Mandel has made an excellent chart comparing the earnings of college costs young college graduates (between the ages of 25 and 34):

Looking at the graph above, you will notice that in the 1990s, pay for young college graduates rose at about the same rate as college costs.

But beginning in 2000, the two lines diverge. In real terms, college costs have increased by 23 percent since 2000. Real pay in the same period for young college graduates, however, has dropped 11 percent over the same period.

Nevertheless, this does not represent a need for government intervention. On the contrary, government is partly responsible for the tuition hikes.

Thomas Sowell explains that,

In any kind of economic transaction, it seldom makes sense to charge prices so high that very few people can afford to pay them. But, with the government ready to step in and help whenever tuition is “unaffordable,” why not charge more than the traffic will bear and bring in Uncle Sam to make up the difference?

Education, like all other products, follows the law of supply and demand. If the price increases beyond people’s means,  demand will fall and consumers (students) will purchase less of the product (education). Government intervention skews this relationship. In subsidizing higher education, universities can get away with increasing tuition since the price is covered by a third party. Would government remove education subsidies, tuition would likely drop.