Explaining the Education Gap Between Children of Immigrants and the Native Born Allocation of Human Capital Investments in Immigrant Families
This paper seeks to understand the source of the well documented observation that second generation immigrants in North America are on average better educated than the remaining native born. This difference persists even after conditioning on parental education and ethnic origin. The gap is often ascribed to stronger preferences for education or higher ability among immigrant parents. I show, instead, how such a gap can arise in a standard human capital framework where parents choose both how much to invest in their own human capital, and the optimal level of schooling for their children. The key insight from the model is that the gap in education can develop even in the absence of differences between immigrants and the native born along unobservable dimensions such as ability, preferences or discount factors. Rather, it may arise as an optimal response to institutional factors such as imperfect transferability of foreign human capital and the presence of credit constraints among low educated individuals in general. The model yields several testable implications. I evaluate them using the Ethnic Diversity Survey, a relatively unexplored Canadian post censal survey with a unique combination of information and sample design. Under reasonable assumptions, immigrant parents with low education are predicted to optimally invest in higher levels of education for their children than similarly educated, native born parents. In contrast, among children of well educated parents, the second generation native born gap, if present at all, may be negative. Furthermore, we should not see any difference in educational attainment, conditional on parental education and ethnicity, between third generation immigrants and the remaining native born. These patterns are indeed present in the data. The model also has direct implications for the relationship between the amount of schooling of immigrant children and the slope of their parents' post migration earnings profiles. We should see educational attainment falling as the slope of parental earnings rises among children of immigrants with low education levels, indicating a tradeoff in human capital investments in immigrant families. I find strong evidence of such a tradeoff occurring in families with low educated parents, but not in families where at least one parent has a post secondary education. *The statistical analysis presented in this paper was produced from Statistics Canada microdata. The interpretation and opinions expressed are my own and do not represent those of Statistics Canada. I am indebted to David Green, John Helliwell and Craig Riddell for their invaluable comments and suggestions. I also thank participants of the UBC micro empirical seminar series.