Skill deficits among foreign-educated immigrants: Evidence from the US PIAAC

Researchers have long observed that foreign-educated immigrants earn lower wages and hold less-skilled jobs than U.S. natives who have the same level of educational attainment, but the reasons for the disparity have been less clear. This paper tests the hypothesis favored by the human capital model of earnings and employment-namely, that foreign-educated immigrants struggle in the U.S. labor market primarily because they possess fewer marketable skills than workers with U.S. degrees. Standardized tests administered as part of the Program for the International Assessment of Adult Competencies reveal that foreign-educated immigrants score 0.82 and 0.54 standard deviations lower on measures of literacy and numeracy, respectively, compared to natives who have the same age and educational attainment. The gaps remain significant after controlling for self-assessed English reading ability. When these skill measures are incorporated into regression analyses, the wage and skilled-employment penalties experienced by foreign-educated immigrants fall by half or more, providing strong evidence for the human capital model. However, this analysis cannot rule out additional explanatory factors, such as legal and social obstacles that foreign-educated immigrants may face.