Migration and Human Capital

Abstract

Immigration in the United States is characterized by a number of empirical regularities. Immigrants cluster geographically and are often employed together. Immigrant earnings differ by origin, even after controlling for education and experience. A large fraction of immigrants eventually returns home, even to low-wage countries. This paper develops a theoretical framework to explain these observations. If worker skills are complementary in production but not perfectly observable by firms, it is optimal to match workers by origin which serves as an indicator of skill. An important implication is that wages and the incentives for skill upgrading depend on the average skill level of a worker's ethnic group. Migration and geographic clustering then arise as workers attempt to escape a reservoir of mostly unskilled workers in their home countries.