Testing the immigrant assimilation hypothesis with longitudinal data

This paper is concerned with the comparison of alternative empirical techniques (cross section, synthetic cohort and panel data) for testing the immigrant assimilation hypothesis (IAH). The IAH specifies that immigrants acquire destination relevant human capital, but at a decreasing rate, with duration in the destination. Hence, ceteris paribus, earnings would be expected to increase, at a decreasing rate, with duration. The true assimilation effects may be obscured, however, in analyses of synthetic cohort or panel (longitudinal) data if there are period effects. That is, if the effect on earnings of duration in the destination varies over time. The empirical analysis uses a matched sample of adult male immigrants from the 1983 and 1995 Censuses of Israel. The matched data show that selective exit from the labor force (due to death, absence from the labor force, and inability to match, but not the remigration of immigrants) is associated with lower earnings in 1983. This biases upward the earnings assimilation estimated by the synthetic cohort method. The earnings data are also consistent with the hypothesis that the mass immigration to Israel from 1989 to 1995 raised the return (price) to Israeli-specific human capital among long-duration immigrants sufficiently to more than offset the greater increase in units of destination human capital acquired by more recent immigrants. As a result, long-duration immigrants experienced a steeper increase in earnings from 1983 to 1995. This annulled the true assimilation effects from 1983 to 1995. Longitudinal tests of IAH which assume that the returns to destination-specific skills remained constant (i.e., that there are no period effects) are biased against supporting the IAH if these returns increased.