The Transferability of Skills and Degrees: Why the Place of Education Affects Immigrant Earnings

Abstract

An important explanation for immigrants’ wage disadvantage is that human capital acquired in the country of origin is not fully transferable to the country of destination. Credentialing theories, on the other hand, argue that being educated abroad results in lower wages because foreign degrees are weaker signals to employers and might impede formal access to occupations. In this study, we use the Programme for the International Assessment of Adult Competencies 2012 (PIAAC) data and include—besides educational degrees—measures of cognitive, non-cognitive, and job-specific skills to explain wages. In our analysis of 11 European countries, we find robust evidence that having a non-Western foreign degree is associated with lower wages. After accounting for different types of skills, the wage penalty associated with having a foreign degree remains substantial, as skills explain only a third of the place of education effect. This finding is in line with the argument that being educated abroad results in lower wages because of not only the limited transferability of skills, but also the limited transferability of degrees.