Peter McHenry is an assistant professor of economics and public policy at the College of William and Mary. He thanks Daifeng He, Melanie Khamis, Fabian Lange, Melissa McInerney, John Parman, Kaj
Thomsson, seminar participants at the College of William and Mary and the Society of Labor Economists 2013 meeting, and three anonymous reviewers for helpful comments. He is grateful to the Thomas Jefferson
Program in Public Policy at the College of William and Mary for research support. Some of the analysis uses restricted- access data NELS:88 that are available from the United States Department of Education
to researchers with institutional affi liations. The author would be happy to help interested researchers ac- cess the data. For assistance, please contact Peter McHenry, College of William and Mary, P.O. Box 8795,
Williamsburg, VA 23187, pmchenrywm.edu. [Submitted June 2013; accepted January 2014]
ISSN 0022- 166X E- ISSN 1548- 8004 © 2015 by the Board of Regents of the University of Wisconsin System
T H E J O U R N A L O F H U M A N R E S O U R C E S • 50 • 1
Immigration and the Human Capital of Natives
Peter McHenry
McHenry
abstract
Large low- skilled immigration fl ows infl uence both the distribution of local school resources and also local relative wages, which exert counterbalancing
pressures on the local return to schooling. I use the National Education Longitudinal Study NELS:88 and U.S. Census data to show that low- skilled
immigration to an area induces local natives to improve their performance in school, attain more years of schooling, and take jobs that involve
communication- intensive tasks for which they native English speakers have a comparative advantage. These results point out mechanisms that mitigate
the potentially negative effect of immigration on natives’ wages.
I. Introduction
Immigration is a very important feature of many local labor markets in the United States. In 12 of the largest 25 cities in 2009, the foreign- born share in
total populations was greater than 20 percent U.S. Census Bureau 2012. Immigrants potentially infl uence the lives of the native- born population in many ways, including
the likelihood of getting a job, wage offers, local prices, migration incentives, and schooling environments. Such relationships are important for public policy because
they are potentially large and also because government policies like visa granting directly infl uence the number of immigrants in the country.
This paper investigates the impact of immigration on the human capital investment decisions of native- born youth. I focus on the effect of immigrants with relatively low
education, a particularly important group in the United States.
1
Betts 1998 provides a useful framework for thinking about the effect of immigration on natives’ educa-
tion through two channels. The fi rst is through the quality of schooling. A large local infl ow of low- skilled immigrants tends to reduce the schooling resources available
for natives—for example, by shifting teachers toward English- profi ciency classes. Diminished school resources reduce the value of education to natives and induce them
to get less of it.
2
On the other hand, recent immigration has increased the market supply of low- skilled workers and should in theory put downward pressure on wages and employ-
ment probabilities for low- skilled residents in many areas. To the extent that low- skilled workers complement the productivity of high- skilled workers, wages in jobs
requiring more education may rise. Both mechanisms increase the return to education, and native- born youth in the area with more immigration may have a strong incentive
to acquire more schooling.
This paper demonstrates empirically that low- skilled immigration induces native- born youth to increase their investments in human capital. I study behavior of native-
born children in the National Education Longitudinal Study NELS:88 responding to immigration fl ows that I measure in the U.S. Census. I fi nd that low- skilled im-
migration fl ows induce local native youth to increase their high school attendance, grades, test scores, and the academic rigor of their curricula. The results use plausibly
exogenous variation in local immigration based on pre- existing ethnic enclaves and are robust to controls including mother’s education and also characteristics of the
student’s school. In addition, I fi nd that low- skilled immigration induces native- born students to attain more secondary and postsecondary schooling.
Finally, I study NELS:88 respondents’ early- career jobs to test a recent hypothesis Peri and Sparber 2009: low- skilled immigrants, who have relatively low English-
language skills, induce low- skilled natives to invest in communication- oriented job skills rather than manual skills. Peri and Sparber 2009 describes the relationship
in an equilibrium model of behavior and fi nds support for it in U.S. Census data. I fi nd that native- born respondents to the NELS:88 with more early immigration expo-
sure choose jobs where they use more word processing and email and perform fewer manual tasks. From changes in natives’ job tasks, I infer that natives invest in com-
munication skills as a way to differentiate themselves from low- skilled immigrants in the local labor market. This fi nding complements Peri and Sparber 2009 and points
to another way that native workers change their behavior to mitigate wage losses due to immigration.
The empirical results in this paper emphasize a potential benefi t of immigration that is largely overlooked in the research literature about costs and benefi ts of immigration.
In particular, public policies that let in more immigrants will yield increased natives’ skills. Such increased human capital investment is socially desirable if native- born
youth underinvest in their own schooling or if education generates positive exter-
1. Card 2005 and others have documented that immigrants to the United States since the late 1960s are much less educated than natives on average. Reasons include global population shifts and the 1965 Immigra-
tion Act, which widened the national origins of immigrants to the United States. 2. The literature on the effects of immigrant students on native students’ school performance yields mixed
results. See Diette and Oyelere 2012, Jensen and Rasmussen 2011, and Neymotin 2009.
nalities.
3
In addition, by augmenting their human capital in response to immigration, native- born workers mitigate the effect of immigration on their wages.
My empirical fi ndings also relate to the estimation of immigration’s effect on na- tives’ wages, a literature with mixed results. One major strand of the literature for
example, Card 2005 demonstrates that native- born workers in high- immigration ar- eas do not earn substantially lower wages than similar workers in low- immigration
areas.
4
A competing strand of the literature for example, Borjas 2003 estimates large elasticities of substitution between immigrant and native- born workers, which imply
large wage effects. After showing my empirical results, I note that native children’s increased investments in human capital in response to immigration imply that pre-
vious studies have mismeasured labor inputs when estimating substitution elasticities. The result is an upward bias: Researchers infer too much substitutability and thereby
overly large effects of immigration on natives’ wages. So my fi ndings about natives’ human capital investment responses to immigration also highlight a downward bias in
estimates of the effect of immigration on natives’ wages among studies that estimate substitution elasticities. If this bias were corrected, then the literature’s most- negative
estimates of immigration on natives’ wages would move toward zero.
II. Prior Literature on Immigration and Natives’ Schooling
