Essays/Social Issues
Doomed to Fail or Set to Succeed:
By Daniela Perdomo, Tufts University
Investment in Human Capital and the Second Generation
B. THEORETICAL MODEL 1. Human capital investment theory In order to fully understand the theory of investment in human capital introduced by Becker and Schultz in the 1960’;s, a definition of human capital is in order (Chiswick 2004). If capital is any resource or resources that can be used to generate economic that can be used to produce economic wealth. Such knowledge and skills can come from education, training, and experience. The value of human capital is determined by how much these skills can earn in the labor market. The theory of investment in human capital states that people invest in human capital in order to maximize their future net wealth. The investment can be categorized into three important phases. The first takes place during childhood, when the second generation is most influenced by the experiences and values of others. Parental resources and guidance and their values and attitudes toward learning play major roles during these first years. The second stage takes place during adolescence and young adulthood, as they are attending high school, college, or vocational school full-time and acquiring knowledge and skills. The last phase, takes place after actually entering the labor market, where people can continue to build on their personal capital (Ehrenberg and Smith 2000). This paper, however, will concentrate on the investment in human capital that occurs during the first and second stages in order to focus on both how the first-generation—;the actual immigrants—;and educational attainment affect the human capital of the second-generation. The value of education taught at home affects the ways people invest in their own human capital. For a person who has never valued education, or who was never encouraged to study hard, he or she will associate a higher “;marginal psychic cost” to acquiring human capital and will therefore acquire less human capital, as shown by comparing HC with HC’ in Figure 1a. In the same way, as the model of optimal schooling dictates, an increase in the benefits of schooling increases an individual’;s demand for it and vice versa, as seen by comparing MB to MB’ in Figure 1b (Chiswick 2004). As a result, those who were never fully exposed to or taught of the benefits of an education will also acquire less human capital. In this sense, an education—;especially education acquired during the latter years of high school and college because Americans can choose to drop out of high school at age 16 and never attend an institute of higher education—;can be seen as a consumption good because people choose to spend their money on it (i.e., invest in it) if they believe they will be better off by doing so. In the case of the demand for education, the expected benefits are higher earnings later in life. This should come as no surprise. Though parental earnings do have an effect on the earnings of the second-generation, the educational attainment of the first-generation is of foremost importance. Research has shown that holding constant education, differences in parents’ earnings have no substantial altering effect on the second generation’;s education or earnings outcome, indicating the rise in the economic importance of education—;especially in light of the fact that the modern U.S. economy mostly rests on technology and information—;and again highlighting how educational values can supersede economic hardship (Card et al. 1998). 2. Sociological & anthropological theories Economists are not the only scholars who study investment in human capital. Recent studies in the sociological and anthropological disciplines have also highlighted that neighborhoods, friends, and general environment outside of the household also have weighty effects on the human capital decisions people make. The works produced by scholars in these disciplines have been mostly dominated by two ideas: the cultural discontinuity theory and the cultural-ecological theory. The former maintains that immigrants and their children are at a disadvantage due to language, cultural, and social interactional conflicts that arise between their lives at home and at school and that acculturation leads to higher economic attainment; the latter theory argues that the economic attainment of immigrants and their children is determined by factors associated with ethnicity and generation (Chiswick 2004). Though this paper will continue to focus on the economic literature available on human capital investment theory, with the major investment being that in a substantive education, it should be noted that there are other factors that influence the human capital of the second-generation. C. ANALYSIS OF DATA The literature reviewed in this paper gathers its information from various sources. Most of the works included in this paper use numbers obtained from national surveys. Those who do use these surveys do so in primarily two different ways: 1) to look at first- and second-generation immigrants in one point in time and 2) to compare first- and second-generation immigrants from one point in time to another. Both the paper by Jensen and Chitose and the one by Perlmann and Waldinger fall into the first category. Both these papers use figures from the 1990 U.S. Census to look at first- and second-generation attainment in those given time periods. The work by Card, DiNardo, and Estes and Borjas, and Driscoll, on the other hand, use similar data from different years to compare attainment in different time periods. Card et al. use data from the 1940 and 1970 U.S. Censuses as well as numbers from the 1994 to 1996 March Current Population Surveys (CPS); Borjas employs the Public Use Microdata Sample of the 1970 U.S. Census and the 1996 to 1998 CPS data; and Driscoll uses figures from the 1988 National Education Longitudinal Study (NELS) and compares that data to U.S. Census updates published in 1997. It must be noted that research on the second-generation today is seriously complicated by the fact that the U.S. Census—;the most comprehensive demographic survey in the country—;dropped the question on parental nativity in 1980 due to widespread complaints by respondents regarding the length of the survey. As a result, all numbers obtained through the Census can only track the second-generation when they are still living in their parents’ homes, which usually means that they are not yet earning a primary income of their own. While the CPS and the NELS still ask about parental nativity, these surveys reach far fewer respondents than the U.S. Census. Obviously, this poses a great roadblock when it comes to analyzing the economic attainment of the second-generation. In addition to Driscoll’;s paper, the only other sociological paper directly mentioned in this review is a study by Alba, Massey, and Rumbaut that looks at the socioeconomic status (SES) of second-generation students (indicators of SES include parental education, homeownership, and poverty) in the Miami-Dade and San Diego public school systems in tandem with their grade point averages, dropout rates, and educational/career aspirations. A common feature of the data in nearly every paper was that the numbers on the second-generation was always compared to numbers on children of native parentage. Additionally, in those same papers data on immigrants was always compared to data on native parents. The only two papers that focused solely on the second-generation were Driscoll’;s and Alba et al.’;s. In their studies, they looked only at information on the second-generation, comparing them only with each other and not with children of native parentage. D. INTERGENERATIONAL CORRELATION 1. Background There is an incredibly diverse representation of human capital in the immigrant (i.e., first-generation) population. Since, as detailed in the previous section, parents play a defining role in developing the human capital of their children, a significant portion of economic literature on the second-generation looks at the intergenerational correlation of human capital. Intergenerational correlation refers to the idea that children of immigrants with higher levels of education and earnings tend to have higher levels education and earnings as well, and vice-versa. In this day and age, differences in years of schooling account for significant differences in income inequality in the United States . As stated earlier this serves as an incentive for many people to invest in their education. As shown in Figure 2, the rate of return in earnings per year for a college graduate is significantly greater than those received by a high school graduate or even a person with a partial college education, 1 giving validity to the benefits people who invest in their education expect. According to statistics from the 2000 U.S. Census, 52 percent of the U.S. population had completed at least some college education with one in four of the entire population having received a college diploma (U.S. Census 2003). The high rate of return to skills in the United States attracts many highly educated migrants who come from countries where either the return to skills is fairly equal (e.g., Scandinavian nations) or where there may be even more income inequality but wages are much lower (e.g., India ). Due to the United States ’ place as the world’;s largest economy, however, positively-selected, or highly-skilled, immigrants are not the only ones that decide to immigrate here; also included in the mix are negatively-selected, or low-skilled, workers. These people are attracted to the United States despite their being on the wrong end of the skills ladder because though they may end up working the worst paid jobs in the American economy, even the U.S. minimum wage is an improvement from their earnings in their home country (e.g., Latin American nations). However, because economic migrants made the conscious decision to move to the United States , it must be noted that even the lowest-skilled (i.e., relative to natives) are not a “;random sampling” of people from their host countries and instead are likely to be of “;higher innate ability [and/or] motivation than [those] native to the country” (Jensen and Chitose 1994). 2. The first-generation A study on the 1990 U.S. Census conducted by Jensen and Chitose found that first generation household heads are more likely to be married (87%) than native heads (76%) and less likely to be divorced, separated or never married (1994). A four-year study by Alba et al. on the second-generation in the migrant-rich Miami-Dade and San Diego school districts found that those students who came from families of high SES where both parents were present were more likely to have higher grade point averages, lower dropout rates, and higher aspirations in terms of educational attainment and career paths (1999). However, Jensen and Chitose’;s study found that because even second-generation children of lower SES are more likely to grow up in families with both parents present, the possibility of more human capital being invested in them exists, and they hypothesize that this extra human capital might even be enough to offset the negative effects of low SES on the second-generation’;s economic attainment (1994). Nevertheless, the same study reveals that the poverty rate for children of immigrants in 1990 was 22 percent, or one-third higher in relative terms than the rate for children of native parentage; those whose parents had immigrated most recently were among the likeliest to be living in poverty. When household heads of second-generation children are compared to those of native children, they are overrepresented at both the poorly and highly educated ends, as evidenced in Figure 4, which refers to numbers from the CPS of 1994 to 1996. This table shows that immigrants who filled out the CPS from 1994 to 1996—;except for those from Mexico and other Latin American nations—;have on average had more years of schooling than natives who filled out the CPS in the same years, providing more evidentiary support for the idea that a great number of immigrants see worth in investing in education. If a large proportion of immigrants see education as important in their lives it is likely that they will pass on such values to their children, the second-generation. This evidently is due to the fact that the United States is host to immigrants of the widest variety of skills. Second-generation children are, across the board, more likely to have a family head with a graduate or professional degree, perhaps a result of a U.S. immigration policy that favors visa applicants with high skills (Card et al. 1998). H1B visas, for example, favor immigrants with exceptional skills and at least a bachelor’;s degree. First-generation heads are also more likely to be self-employed or working in the private sector than their American counterparts and poor second-generation children are 8 percent more likely (at 59% to 51%) than poor children of native parentage to have heads earning incomes (Card et al. 1998). Though the average first-generation head pulls in slightly less income than the average native head, with a mean receipt in $1,000’;s only 1.9 less than the average American household head, the fact that second-generation household heads have greater self-employment income by more than $3,000 per year speaks to the entrepreneurial spirit—;an important form of human capital—;of the people who choose to immigrate to the United States (Card et al. 1998). Using the 1970 Public Use Microdata Sample of the U.S. Census and the pooled 1996-1998 CPS, Borjas produced a graphical representation of the intergenerational correlation in skills between the first- and second-generation. If the trend line were flat, it would indicate that there is no plausible connection between the average skills of the immigrant generation and the average skills of their children but the upward-sloping nature of the graph clearly shows that over the 1970 to 1998 period, 67 percent of the wage differences in the first-generation were passed onto the second (Borjas 1999). Though the third-generation and those that follow are not the focus of this paper, it is important to note that the intergenerational correlation is strongest between the immigrant generation and its children and weaker in every succeeding generation, driven by a concept known as regression toward the mean, which is to say that as we move down the family tree, the economic status of the children move toward the mean of the population, no matter where their parents started out (Borjas 1999). Banking magnate Andrew Carnegie once referred to this phenomenon by saying, “;Three generations from shirtsleeves to shirtsleeves” (Borjas 1999). All the same, because this paper focuses on the human capital attainment of the second-generation, intergenerational correlation still plays a big role in our discussion. 3. The second-generation After having discussed at length the human capital of the first-generation, it is time to turn to the second-generation. If most of them are being infused with this extra human capital at home, then how does this translate once the second-generation moves on to the second and third states of human capital investment, when they start making their own choices regarding their human capital and are competing in a market of mostly children of native parentage? Card et al.’;s study shows that both second-generation men and women who filled out the CPS between 1994 and 1996 achieved higher levels of education than children of natives (1998). Additionally, even if immigrants had somewhat low education levels and/or earnings when compared to natives, their children still surpassed the educational attainment levels of the children of two natives. Though the Latin American second-generation still had lower educational levels than children of natives, they achieved an average of two or more years of education than their parents did, perhaps a testament to the higher quality of human capital present in all immigrants to the United States, their skills notwithstanding. As most of the second-generation invests more in their educational attainment than do children of native parentage, it is reasonable to conclude that, controlling for ethnic background, children of immigrants will have higher wages than children of natives. E. COUNTRY-OF-ORIGIN/ETHNIC EFFECTS 1. Background It is now time to look at how ethnic and country background affect the education and resulting wage attainment of the second-generation. As referred to in the opening paragraph of this paper, the 1965 Hart-Celler Act revolutionized immigration to the United States —;27 percent of the foreign-born population arrived after 1990 and another 32 percent came during the 1980’;s (Driscoll 1999). Before 1965 there had been laws restricting immigration from Asia and immigrant quotas for almost every nation in the world, and so the great bulk of immigrants to the United States came from the European continent. With the passing of the 1965 law and 1990 Immigration Act which both generally increased immigrant visas and allowed an unlimited number of visas for immediate relatives, more and more of the migrants arriving at U.S. border stations and ports are from Latin America and Asia—;three-quarters of them, in fact (Driscoll 1999). Mexicans make up 27 percent of the foreign-born population while people from Central and South America and the Caribbean make up another 24 percent; Asians account for 27 percent of the foreign-born (Driscoll 1999). As noted earlier, more second-generation children are living under the official poverty rate than are children of native parentage. It is facts such as this one that cause some to jump to the conclusion that there is a “;declining quality” in the immigrants coming to the United States, especially given the high numbers of low-skilled immigrants from Mexico and the rest of Latin America. Upon a closer look, however, it is clear that immigrants to the United States are not of a worse quality than the cohorts who came before them. The following sub-sections will explain the nuances behind the true quality of immigrants’—;and their citizen children’;s—;human capital today, an important subject to discuss if we wish to ascertain which factors affect the second-generation’;s economic attainment. 2. Ethnic capital Economist Borjas refers to ethnic capital as having a strong effect on the second-generation’;s SES. He refers to this kind of capital as “;a whole set of ethnic characteristics—;including culture, attitudes, and economic opportunities” that ethnic children are exposed to throughout their lifetimes (1999). Borjas associates ethnic capital to the intergenerational correlation in education by saying that ethnic groups “;cluster” in the same occupational fields: using hypothetical Korean and Mexican children as comparisons, he writes that the Mexican child is likely to be exposed to the contacts of less-skilled people while the Korean child will is likely to be exposed to the contacts of college-educated people, thereby influencing the second-generations’ educational attainment choices (1999). Borjas goes on to call the impacts of ethnic capital “;spillover effects”, or externalities (1999). An externality is when a decision someone else makes—;such as how many years of education to attain—;spills over and affects the decision of another person. Due to path dependence, which means that people make choices based on history, many immigrants move to places where others who emigrated from the same country have settled or where there are at least other people who speak their native language. As a result of the tight knit nature of immigrant and ethnic enclaves in the United States , immigrant children of color’;s SES are especially affected by ethnic capital. Figure 7 shows just how greatly ethnic capital affects the second-generation’;s human capital, using numbers from the General Social Surveys and National Longitudinal Surveys of Youth. According to this graph, both the wages and education levels of the second generation are greatly affected by ethnic capital, sometimes more so than by parental influence. As a result, the intergenerational correlation is not the only factor that affects the second-generation’;s human capital and, consequently, their economic attainment. Important questions remain, then: why are poverty figures for second-generation children higher than those of children of natives if this paper has already argued that their human capital is higher than that of children of native parentage? In that same line of thought, how can it still be said that having at least one immigrant parent will lead to higher economic attainment in the United States ? The question of the Mexican immigrant population serves to answer these important questions. 3. The Mexican effect Perlmann and Waldinger, in their study of second-generation demographics, go as far as to say that “;were it not for Mexican immigration,” all immigrant members of American society would “;begin their progress through the American economy no worse off than other Americans who are not immigrants” and that second-generation children’;s living circumstances would exceed those of children of native parentage if the Mexican-American population was excluded (1997). They are not the only scholars to note the distorting effect of Mexican immigrants and their offspring on numbers regarding the human capital of the new wave of immigrants and the resultant second-generation. Chiswick, as far back as in 1977, noted that the “;lower earnings of foreign parentage Mexican-Americans reflect a characteristic of an ethnic group, rather than a problem peculiar to second-generation status” indicating that the so-called declining quality of immigrants might be limited to certain immigrant groups, especially the Mexican immigrant population, which makes up nearly one-third of the foreign born living in the United States. Second-generation Hispanics are one of the fastest-growing demographics in the United States today. In 1997, 87 percent of Americans aged 25 to 29 had completed high school while only 62 percent of Hispanics of the same age had; similarly, that same year, while 28 percent of young adults had received a bachelor’;s degree, only one in 10 Hispanic young adults had (Driscoll 1999). Even more shocking, three of 10 Hispanics aged 16 to 24 years old were neither enrolled nor had they graduated from high school (Driscoll 1999). Figure 4 showed that first-generation Mexican and South and Central American immigrants have significantly lower education levels than immigrants from other regions of the world, including Asians who make up the second largest group of immigrants. According to 1994-1996 CPS numbers, Latin American immigrant men had an average of 9.4 years of education and women had an average of 9.6 years of education while all the other male groups had between 12.8 to 13.9 years of education and the other female groups had between 12.2 to 13.1 years of education (Card et al. 1998.) Needless to say, Mexicans, who outnumber all other Latin American immigrant groups added together, generally come to the United States with far less skills than any other cohort. Due to Mexico ’;s geographical proximity, many poor, low-skilled Mexicans can cross the U.S. border illegally, and have done so for the past decades. The legalization of undocumented immigrants already living in the United States in 1990 allowed many of these low-skilled Mexican immigrants to bring their equally low-skilled family members into the country as well. Figure 8 shows just how destabilizing Mexican immigration can be when Mexican data is pooled into numbers on all immigrants in the United States . The graph, taken from Perlmann and Waldinger’;s study, looks at four indicators about the characteristics of immigrant children—;whether or not the household head is a college graduate, if the head is a single parent, public assistance, and head upper white-collar—;were analyzed. For three-fourths of the indicators, all second-generation children in 1990 were living in less desirable situations than their native counterparts. However, when the Mexican second-generation is removed from the study, the lead in desirable living situation is passed onto the children of immigrants. According to Perlmann and Waldinger, Mexicans excluded, 30 percent of the second-generation lives in a household where the head has a college degree, while the number for children of native parentage is seven percent lower (1997). All is not bleak, however, as there are some heartening statistics available about the Mexican second-generation. The second-generation has, for the most part, attained a higher level of education than their parents. Driscoll’;s study on the risk of high school dropout among Hispanics using data from the National Education Longitudinal Study of 1988 shows that while 44 percent of 16 to 24 year old first-generation Hispanics have not graduated from high school and are not enrolled in school, the number is only 17 percent and 22 percent for the second- and third-generations of young Mexican-Americans (1997). A U.S. Census update in March 1997 additionally revealed that second generation Hispanics are both more likely than first-generation Hispanics to finish high school and graduate from college at 13 percent to 8 percent (U.S. Census 1997). This may all be due to the same regression toward the mean explained before. 4. The overall quality of today’;;s immigrants and second-generation So is the overall quality of immigrants and second-generation declining or not? While Card et al.’;s study using CPS numbers found that there was an overall low employment rate of second-generation men in 1994-1996, it was ascertained that it was directly correlated with the fact that a great percentage of the newest second-generation cohort is still too young to work full-time, and so many of those wages are those earned by high school students working after school jobs, etc. (1998). Additionally, and quite surprisingly, it was found that the adjusted immigrant-native wage gap was 10 percent in 1940, 6 percent in 1970, and that it rose back up to 8 percent in the 1994-1996 time period, indicating that little has changed in terms of the wage gap between natives and immigrants since at least the 1940’;s (Card et al. 1998). Furthermore, the wage gaps for second-generation have remained stable (see Figure 9), despite the changing age and ethnic composition of children of native parentage between 1970 and the 1990’;s, and the growing wage inequality in the United States as a whole (Card et al. 1998). In this respect, second-generation workers have maintained their relative wage advantage, despite the influx of less-skilled immigrants from Latin America, and especially from Mexico . F. CONCLUSIONS Before reaching a conclusion on the literature read on the economic attainment of the second-generation, I would like to make some suggestions for the amelioration of research on this subject. More research should be directed toward second-generation status-attainment that combines both sociological and economic theories so as to put together a more complete picture of which human capital investments render the strongest results. In this way, programs that will add onto less-skilled second-generation groups’—;like the children of Mexican immigrants’—;human capital can be devised. As noted in the analysis of data, research today is seriously complicated by the fact the U.S. Census dropped the question on parental nativity in 1980. With the second generation being one of the fastest-growing demographics in the country, the opportunity to gather information on them every ten years via the Census is a great one. The question on parental nativity should be reinstated in time for the next U.S. Census in 2010 because we cannot afford to let the absence of this question go on for more than thirty years, especially at such a crucial point in the expansion of the second-generation population. Despite the less than ideal amount of information available regarding the second generation, when all is said and done, the data that is available shows that the quality of immigrants and their offspring does not seem to be declining. For the most part, second generation Americans come from families rich in human capital—;be it in motivation, education or both. Despite the Mexican second-generation’;s lower achievement, educationally and economically, there is evidence that even they are doing better than their parents which provides some hope that one day they will not lag so far behind natives and other second-generation groups. It appears that being the child of immigrants is still associated with greater investment in human capital and therefore greater socioeconomic success in the United States . G. BIBLIOGRAPHY Alba, R., Massey D.S., & Rumbaut R.G. (1999) The Immigration Experience for Families and Children. Washington , D.C: American Sociological Association. Borjas, G.J. (1999). Heaven’;s Door: Immigration Policy and the American Economy. Princeton , NJ : Princeton University Press. Borjas, G.J. (1995). The Economic Benefits from Immigration. Journal of Economic Perspectives, 9, 3-22. Buriel, R. & Cardoza D. (1988). Sociocultural Correlates of Achievement among Three Generations of Mexican American High School Seniors. American Educational Research Journal, 25(2), 177-192. Card, D., DiNardo J., & Estes E. (1998). The More Things Change: Immigrants and the Children of Immigrants in the 1940s, the 1970s, and the 1990s. National Bureau of Economic Research, Working Paper 6519. Chiswick, B.R. (1974). Income Inequality: Regional Analyses within a Human Capital Framework. New York : Columbia University Press. Chiswick, B.R. (1977). Sons of Immigrants: Are They at an Earnings Disadvantage? American Economic Association, 67(1), 376-445. Chiswick, B.R., & DebBurman N. (2004). Educational attainment: analysis by immigrant generation. Economics of Education Review, 23, 361-379. Chiswick, B.R., & Miller P.W. (2002). Immigrant earnings: Language skills, linguistic concentrations and the business cycle. Journal of Population Economics, 15, 31-57. Driscoll, A.K. (1999). Risk of High School Dropout Among Immigrant and Native Hispanic Youth. International Migration Review, 33(4), 857-875. Ehrenberg, R.G. & Smith, R.S. (2000). Modern Labor Economics: Theory and Public Policy. New York : Addley Wesley Longman. Jensen, L., & Chitose Y. (1994). Today’;s Second Generation: Evidence from the 1990 U.S. Census. International Migration Review, 28(4), 714-735. Levitt, P., & Waters, M.C. (Eds.) (2002). The Changing Face of Home: The Transnational Lives of the Second Generation. New York : Russell Sage Foundation. Neidert L.J. & Farley R. (1985). Assimilation in the United States : An Analysis of Ethnic And generation Differences in Status and Achievement. American Sociological Review, 50(6), 840-850. Perlmann, J., & Waldinger, R. (1997). Second Generation Decline? Children of Immigrants, Past and Present – A Reconsideration. International Migration Review, 31(4), 893-922. Portes, A. (Ed.). (1996). The New Second Generation. New York : Russell Sage Foundation. Portes, A., & Rumbault R.G. (Eds.). (2001). Legacies: The Story of the Immigrant Second Generation. Berkeley , CA : University of California Press. Rumbault R.G., & Portes A. (Eds.). (2001). Ethnicities: Children of Immigrants in America . Berkeley , CA : University of California Press. Schmid, C.L. (2001). Educational Achievement, Language-Minority Students, and the New Second Generation. Sociology of Education Extra Issue, 71-87. U.S. Bureau of the Census. (2000) Characteristics of Children Under 18 Years by Age, Race, and Hispanic or Latino Origin, for the United States , 2000. Current Population Reports. Washington , D.C. : Government Printing Office. U.S. Bureau of the Census. (2003) Educational Attainment, 2000. Current Population Reports. Washington , D.C. : Government Printing Office. U.S. Bureau of the Census. (2003) The Foreign-Born Population of the United States , 2000. Current Population Reports. Washington , D.C. : Government Printing Office. |
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