Local signals and the returns to foreign education

Abstract

This paper studies whether assessing foreign education with its host country equivalent, as practised in Australia, raises migrants' returns to schooling. Using unawareness between degrees obtained abroad versus Australia as instrument for undertaking the assessment, I find substantial wage improvements when foreign qualifications are assessed in both cross-sectional and panel estimations. This result is not solely attributable to selection, as this would imply an unrealistic shift in the distribution of unobserved characteristics among assessed and not-assessed migrants. Adding a local signal to foreign education emerges as effective policy to improve the transferability of human capital and migrants' economic assimilation.