Detangling capital from context: a critical investigation of human capital explanations for immigrant wage inequality

Abstract

ABSTRACT Researchers propose that novel measures of human capital, such as place of education or sending country GDP, can account for inequalities between foreign- and native-born persons that classic measures of human capital, such as years of education, leave unexplained. However, interpreting the relationship between these novel measures and outcomes of interest is challenging. In Western countries, variables such as sending country GDP, which are intended to assess the effects of human capital quality on earnings, may instead capture the effects high levels of pre-migration acculturation among migrants from developed countries, or natives’ positive attitudes towards white migrants. To avoid these problematic collinearities between human capital on one hand, and native attitudes on the other, I analyse data from Japan, where immigrants are not simultaneously advantaged or disadvantaged in terms of their level of acculturation, their human capital quality, and the attitudes that natives hold towards their group. In a setting where collinearities with native attitudes are attenuated, I find little evidence that novel measures of human capital predict higher earnings. The findings imply that previous research overstates the explanatory power of these novel measures of human capital, and potentially understates the impact of native attitudes.