University prestige, cultural distance of the place of education, and wage differences between high-skilled U.S. immigrants with foreign and domestic credentials

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We examine the reasons behind a wage penalty that is applied to foreign-educated immigrants—a phenomenon identified across countries and levels of educational attainment. The lower wages employers offer to high-skilled immigrants are usually attributed to the foreignness of their educational credentials. We argue instead that their disadvantaged economic outcomes are related to the educational prestige of their universities and the cultural distance of their places of education. Employers may interpret signals of ability from the educational prestige associated with credentials and may view immigrants as lacking relevant cultural competence if they perceive the place of education as culturally distant. Using data from the U.S. H-1B visa program, we show that employers do not discount wage offers to immigrants with foreign degrees per se. Instead, we find that they offer lower wages to immigrants with educational credentials from less prestigious universities and more culturally distant places of education.