Jorgen Hansen Miroslav Kucera Xingfei Liu Differences in education between children of natives and children of immigrants: The impact of preferences, family background and abilities Jorgen Hansen Miroslav Kucera Xingfei Liu Preliminary version/ Concordia U

Preliminary version / Concordia U Introduction The U.S. has a long history of immigration, dated back to the 17th century (colonial period) and immigrants (born outside of U.S. territory) constitute a significant portion of the total population In 1970, adult immigrants (aged 24-64) accounted for 4.7% of the total population and the share of children of immigrants (at least one immigrant parent) was 11.8% (below age 18) In 2006, immigrants comprise over 12 percent of the U.S. population and their children over 20 percent among all children. If current trends continue, children of immigrants will represent more than a quarter of all U.S. children by 2011 Preliminary version / Concordia U

Introduction(continued) The human capital accumulation of children of immigrants becomes more important for the development of the U.S. economy Most research on the economics of immigration has focused on “first-generation” immigrants Important to understand how the children of immigrants compare with children of natives to assess long-term costs/benefits of immigration This study is important given the concerns that have been raised about deteriorating quality of recent immigrants in the U.S., most of whom are of Hispanic origin, combined with the fact that a majority of the immigrant children in our sample have Hispanic origins 59% of children of immigrants are Hispanics. Preliminary version / Concordia U

Objectives Compare educational attainment and early labor market outcomes of young adults, by immigrant status Formulate a structural model of schooling choices which will enable us to determine the roles of preferences and abilities in educational attainment Such a model also allows us to identify factors that may affect children of natives and children of immigrants differently Preliminary version / Concordia U

Preliminary version / Concordia U Model Dynamic programming approach Basic assumptions: Young adults start making school decisions after age 16 (satisfies the age limit for work in most states) Two choices in each period (school or work) Schooling decisions are modelled using a discrete time optimal stopping model augmented to account for school interruptions Finite time horizon, individuals retire at age 65 Preliminary version / Concordia U

Preliminary version / Concordia U Model (continued) Instantaneous utility of attending school at t conditional on initial education: Instantaneous utility of working (t): Specifically (t): Preliminary version / Concordia U

Preliminary version / Concordia U Model (continued) Value functions: In school (discounted present value): Where Value function of school depends on S(t) through grade specific costs. Preliminary version / Concordia U

Preliminary version / Concordia U Model (continued) Working(discounted present value): Where Preliminary version / Concordia U

Preliminary version / Concordia U Model (continued) School interruptions: A school interruption occurs when an individual is not enrolled in school but returns to school later During an interruption, grades are not accumulated and wages (if working during the interruption) are not utilized The probability of having an interruption in period t is assumed to be exogenous and grade-specific (calculated from incidences of interruptions in our sample) Preliminary version / Concordia U

Preliminary version / Concordia U Model(continued) Heterogeneity: We consider both observed (parent’s background, test scores) and unobserved heterogeneity as determinants of both the utility of school and work as well as the initial (at age 16) grade level The unobserved heterogeneity components are assumed to be correlated Preliminary version / Concordia U

Preliminary version / Concordia U Data NLSY97 12-16 years old in December 1996 (8984 individuals) Information available annually from 1996 until 2007 We focus on males in order to avoid modelling fertility decisions Final sample consists of 3768 males 15.4% are defined as children of immigrants Children of immigrants are either born in the U.S. (5.5% of the sample) or born outside of the U.S. (9.9% of the sample) Second generation immigrants are those who were born in U.S but with at least one parent born outside U.S. First generation immigrants are those who were born outside of U.S. To non-U.S. Citizens. Preliminary version / Concordia U

Preliminary version / Concordia U Data (continued) The enrolment status is derived by looking at grades completed in adjacent academic years Periods in the model were mimicked by academic years in the data We control for truncated educational streams If we see an increase in grades completed in next academic year, then there is progression in education, otherwise, two outcomes ensue: interruption or leave school forever. Preliminary version / Concordia U

Preliminary version / Concordia U Data (continued) Basic descriptive statistics (educational attainment) Children of Natives: Average years of schooling is 12.81 74.4% high school and above 19.9% University and above Children of Immigrants: Average years of schooling is 12.94 75.4%high school and above 19.8%University and above Test Score (Armed Services Vocational Aptitude Battery): asvab_mean 3.05 asvab_mean 3.02 Asvab varies from -2.64 to 10.89 (nlsy97). See appendix for details Please see appendix for education distributions for natives and children of immigrants Preliminary version / Concordia U

Preliminary version / Concordia U Data (continued) Parents educational background: Children of Natives: years of schooling: 12.89 (father); 12.75 (mother) Children of Immigrants: years of schooling: 11.11 (father); 11.16 (mother) Parental Income: Three years’ average (1998-2000): $30,420 Three years’ average (1998-2000): $28,470 See appendix for details Preliminary version / Concordia U

Preliminary version / Concordia U Data (continued) Ethnicity compositions: Children of Natives: Black: 28.84% Hispanic: 11.83% Other: 3.39% White: 55.95% Children of Immigrants: Black: 8.95% Hispanic: 59.55% Other: 14.11% White: 17.38% Descriptive statistics does not suggest that children of immigrants are out-performed by their native counterparts, although they have weaker family backgrounds. See appendix for details Preliminary version / Concordia U

Preliminary version/ Concordia U Estimation Modelling initial conditions by ordered probit procedure: Initial conditions have to be considered since individuals have different level of education when they become 16. Preliminary version/ Concordia U

Estimation (continued) Given the optimal decision rule d (d=0 or d=1), individual’s probabilities of choosing different paths are: Preliminary version / Concordia U

Estimation Results(baseline model partly) Parameters estimates t-stats obs Utility of School Intercept 0.2325 0.83 3768 Initial education 0.1528 3.89 Utility of Work 1.8511 152.43 0.0007 1.60 Return to education 0.0873 40.38 Return to experience 0.0405 21.26 Refer to appendix to see complete estimation results. School costs are specific to each grade level and there are 13*5 estimators for these costs. Preliminary version / Concordia U

Model fit (baseline model) Actual grades Percent Predicted grades 5 0.03 0.00 6 0.19 7 0.66 0.64 8 2.97 3.50 9 5.33 7.06 10 8.04 9.82 11 8.20 8.68 12 28.45 25.72 13 9.95 9.47 14 10.54 8.39 15 5.68 4.94 16 11.89 11.41 17 5.10 5.02 The initial distribution of educational attainment varies from 5 to 13, however, there were only 22 observations below grade 7 and 13 observations above grade 11. Preliminary version/ Concordia U

Model fit (baseline model continued) Actual grades Percent(3768) Predicted grades 18 2.07 2.97 19 0.61 1.04 20 0.29 0.96 21 0.00 0.24 22 0.11 23 0.05 The initial distribution of educational attainment varies from 5 to 13, however, there were only 22 observations below grade 7 and 13 observations above grade 11. Preliminary version/ Concordia U

Estimation Results(1 type) Parameters estimates t-stats obs Utility of School Intercept(1) -0.4202 -1.00 3768 Initial Edu 0.2055 4.19 Intc children of immigrants 0.0247 0.20 Intc Black -0.1535 -9.77 Intc Hispanic -0.0406 -2.17 Intc Other -0.0212 -0.73 Father’s eduation 0.0186 8.98 No unobserved Heterogeneity. Refer to appendix to see complete estimates table Preliminary version/ Concordia U

Estimation Results(1 type continued) Parameters estimates t-stats obs Father’s education chimmi 0.0028 1.06 3768 Mother’s education 0.0161 7.33 Mother’s education chimmi -0.0063 -2.05 Parent income 0.0015 5.54 Parent income chimmi 0.0001 0.05 Test score 0.0536 12.41 Test score Chimmi 0.0063 0.52 Preliminary version/ Concordia U

Estimation Results(1 type continued) Parameters estimates t-stats obs Utility of Work Intercept 1.4435 32.11 3768 Initial Edu 0.0570 11.60 Intercept chimmi -0.1243 -4.16 Interc Black -0.1401 -14.22 Interc Hispanics -0.0397 -3.29 Interc Other -0.0472 -2.39 Test 0.0148 5.21 Test chimmi -0.0045 -0.56 Return to Edu 0.0731 30.78 Return to Edu chimmi 0.0252 4.58 Return to exp 0.0388 18.97 Return to exp chimmi 0.0216 3.88 Preliminary version / Concordia U

Preliminary version/ Concordia U Model fit (1type model) Actual grades Percent Predicted grades 5 0.03 0.00 6 0.19 7 0.66 0.80 8 2.97 3.29 9 5.33 6.74 10 8.04 8.63 11 8.20 7.80 12 28.45 26.83 13 9.95 9.82 14 10.54 8.47 15 5.68 5.07 16 11.89 11.70 17 5.10 5.31 The initial distribution of educational attainment varies from 5 to 13, however, there were only 22 observations below grade 7 and 13 observations above grade 11. Preliminary version/ Concordia U

Model fit (1type model continued) Actual grades Percent(3768) Predicted grades 18 2.07 3.08 19 0.61 1.27 20 0.29 1.17 21 0.00 0.03 22 23 The initial distribution of educational attainment varies from 5 to 13, however, there were only 22 observations below grade 7 and 13 observations above grade 11. Preliminary version/ Concordia U

Estimation Results(4 types) Parameters estimates t-stats obs Utility of School Hetero(1) -0.1852 -1.0719 3768 Hetero(2) -1.0365 -5.4056 Hetero(3) -0.7392 -5.7770 Hetero(4) -1.2151 -7.4105 HeteroSH 0.3874 8.1954 HeteroSB -0.2701 -5.3119 HeteroSC 0.4058 8.6605 HeteroSW -0.6213 -3.8417 HeteroNH 0.2843 6.8293 HeteroNB -0.2041 -8.5080 HeteroNC 0.0035 0.0649 Refer to “txt” file to see complete estimates table Preliminary version/ Concordia U

Estimation Results(4 types) Parameters estimates t-stats obs Utility of Work Hetero(1) 2.7333 23.7520 3768 Hetero(2) 1.7771 47.6495 Hetero(3) 1.2874 37.3463 Hetero(4) -0.3526 -1.4640 PrefSH -0.1198 -3.7215 PrefSB -0.2263 -20.7379 PrefSC -0.0471 -1.1365 PrefSW -0.1333 -6.3948 PrefNH -0.0257 -0.9131 PrefNB -0.0530 -2.4867 PrefNC -0.0748 -2.4945 Refer to “txt” file to see complete estimates table Preliminary version/ Concordia U

Estimation Results(4 types) Parameters estimates t-stats obs Utility of Work Wedret 0.0649 14.9249 3768 WedretSH 0.0139 2.2779 WedretSB 0.0413 5.6304 WedretSC 0.0080 0.9689 WedretSW 0.0385 4.5962 WedretNH -0.0107 -1.9057 WedretNB -0.0097 -2.3888 WedretNC 0.0188 2.6415 Preliminary version/ Concordia U

Estimation Results(4 types) Parameters estimates t-stats obs Utility of Work Wexp 0.0286 6.4372 3768 WexpSH 0.0226 4.5554 WexpSB 0.0263 3.6659 WexpSC 0.0249 2.9574 WexpSW -0.0133 -1.6309 WexpNH 0.0062 1.3446 WexpNB -0.0144 -4.1538 WexpNC 0.0026 0.4218 Preliminary version/ Concordia U

Estimation Results(3 types) Parameters estimates t-stats obs Probabilities P1 -0.7994 -17.6356 3768 P2 0.3608 7.6796 P3 0.6749 14.9455 Pr1 0.0927 Na Pr2 0.2959 Pr3 0.4051 Pr4 0.2063 Preliminary version / Concordia U

Main results and discussions Parents educational background seem to have similar effects on educational choices for children of immigrants and children of natives Return to education is higher for children of immigrants with Hispanic origins 0.0788 (t-stats=2.28) than that of native’s 0.0649. Differences in unobserved heterogeneity and the wage return to education help to explain the fact that, compared to children of natives, children of immigrants do not fall behind in educational performances Preliminary version / Concordia U

The end Thank You! preliminary/ Concordia U

Preliminary version / Concordia U Appendix Asvab: Constructed from six sub-categories which are Arithmetic Reasoning; Word Knowledge; Paragraph Comprehension; Numerical Operation; Coding Speed; Mathematics Knowledge. These tests were performed in 1999 in a CAT fashion. The model employs residuals of asvab_mean on grades completed by 1999. Selected references: Borjas. G.J. (1994) “Immigrant Skills and Ethnic Spillovers” Journal of Population Economics, Vol. 7, No. 2 (Jun., 1994), pp. 99-118 Borjas. G.J. (2000) << Issues in the Economics of immigration >> University of Chicago Press, 2000. ISBN 0-226-06631-2. Belzil. C., J. Hansen, (2002) “Unobserved Ability and the Return to Schooling” Econometrica, Vol. 70, No. 5 (Sep., 2002), pp. 2075-2091  Belzil. C., J. Hansen, (2007) “A Structural Analysis of The Correlated Random Coefficient Wage Regression Model” Journal of Econometrics 140 (2007) 827–848. Wikipedia , http://en.wikipedia.org/wiki/Immigration_to_the_United_States. CAT: computer-based adaptive test, each individual has different set of questions based on his/her precious responses to the question. Preliminary version / Concordia U

Preliminary version / Concordia U Table 1a Descriptive Statistics All Appendix (continued) Table 1a Descriptive Statistics All Variable Mean Std N N-miss Min Max White 0.5000 0.5 3768 1 Black 0.2577 0.44 Hispanic 0.1919 0.39 Other 0.0504 0.22 Ch/im 0.1542 0.36 Fed 12.61 3.23 3035 733 2 20 Med 12.51 2.88 3481 287 PI 30.42(k) 17.00 3557 211 159.38(k) N-sib 2.48 1.23 9 Nuclear 0.51 0.50 Asvab_ 3.05 2.02 3070 692 -2.64 10.04 Start_acedu 9.03 0.83 5 13 Acedu 12.83 2.52 Acedu (truncated) 0.1765 0.38 Ln(w) (nper) 2.40 2161 1607 1.32 5.04 Preliminary version / Concordia U

Preliminary version / Concordia U Table 1a Descriptive Statistics All Appendix (continued) Table 1b Descriptive Statistics Children of Immigrants Variable Mean Std N N-miss Min Max White 0.1738 0.38 581 1 Black 0.0895 0.29 Hispanic 0.5955 0.49 Other 0.1411 0.35 Ch/im 1.0000 0.00 Fed 11.11 4.65 463 118 2 20 Med 11.16 4.17 522 59 PI 28.47(k) 13.80 547 34 0.77(k) 126.45(k) N-sib 2.67 1.20 6 Nuclear 0.6523 0.48 Asvab_Mean 3.02 1.95 444 47 -2.14 8.46 Start_acedu 9.16 0.85 5 12 Acedu 12.94 2.40 Acedu (truncated) 0.1704 2.38 Ln(w) (nper) 2.44 0.50 340 241 1.35 4.72 Preliminary version / Concordia U

Preliminary version / Concordia U Table 1a Descriptive Statistics All Appendix (continued) Table 1c Descriptive Statistics Children with native parents Variable Mean Std N N-miss Min Max White 0.5595 0.50 3187 1 Black 0.2884 0.45 Hispanic 0.1183 0.32 Other 0.0339 0.18 Ch/im Fed 12.89 2.81 2572 615 2 20 Med 12.75 2.51 2959 228 PI 30.76 17.50 3010 177 159.38(k) N-sib 2.44 1.23 9 Nuclear 0.4857 Asvab_Mean 3.05 2.04 2626 551 -2.64 10.04 Start_acedu 9.01 0.83 5 13 Acedu 12.81 2.54 6 Acedu (truncated) 0.1776 0.38 Ln(w) (nper) 2.40 0.51 1821 1366 1.32 5.04 Preliminary version / Concordia U

Appendix Table 2a education distributions Children of Immigrants Initial Accumulated Education (years of schooling) Frequency Percent Cumulative 5 1 0.17 6 3 0.52 4 0.69 7 10 1.72 14 2.41 8 77 13.25 91 15.66 9 317 54.56 408 70.22 146 25.13 554 95.35 11 22 3.79 576 99.14 12 0.86 581 100.00 Accumulated Education 2 0.34 13 2.24 16 2.75 23 3.96 39 6.71 65 78 13.43 156 11.19 143 24.61 64 26.85 299 51.46 70 11.02 363 62.48 12.05 433 74.53 15 33 5.68 466 80.21 80 13.77 546 93.98 17 18 3.10 564 97.07 1.55 573 98.62 19 1.03 579 99.66 20 preliminary/ Concordia U

Appendix Table 2a education distributions children of native-born Americans Initial Accumulated Education (years of schooling) Frequency Percent Cumulative 5 4 0.13 6 14 0.44 18 0.56 7 89 2.79 107 3.36 8 571 17.92 678 21.27 9 1760 55.22 2348 76.50 10 670 21.02 3108 97.52 11 71 2.23 3179 99.75 12 3183 99.87 13 3187 100.00 Accumulated Education 0.22 23 0.72 30 0.94 99 3.11 129 4.05 178 5.59 307 9.63 265 8.32 572 17.95 243 7.62 815 25.57 916 28.74 1731 54.31 312 9.79 2043 64.10 326 10.23 2369 74.33 15 183 5.74 2552 80.08 16 367 11.52 2919 91.59 17 173 5.43 3092 97.02 69 2.17 3161 99.18 19 0.53 3178 99.72 20 0.28 preliminary/ Concordia U

Appendix (baseline model estimates) ITER=***** F= 0.578379D+01 NORM=0.224244D-02 NSIG= 1.OBS=3768 intc 0.2325 0.2778 0.8370 0.0002 sp2 -0.4986 0.0616 -8.0970 0.0004 sp3 0.1290 0.1117 1.1550 0.0003 sp4 -0.8221 0.2444 -3.3642 0.0000 sp5 1.1624 0.3270 3.5543 0.0005 sp6 -1.2150 0.5016 -2.4220 0.0002 sp7 0.3615 0.2075 1.7422 0.0002 sp8 0.8998 0.4103 2.1933 0.0002 sp9 -0.1367 0.0876 -1.5607 0.0002 sp10 -0.0769 0.0435 -1.7655 0.0001 sp11 -0.0228 0.0124 -1.8336 0.0000 sp12 -0.0058 0.0033 -1.7428 0.0000 sp13 -0.0014 0.0015 -0.9012 0.0000 sp14 -0.0005 0.0014 -0.3560 0.0000 sp82 -0.3651 0.1211 -3.0152 -0.0005 sp83 -0.5107 0.0862 -5.9232 0.0005 Preliminary version / Concordia U

Appendix (baseline model estimates) sp84 0.9087 0.0834 10.8894 0.0003 sp85 -1.1672 0.1773 -6.5842 -0.0005 sp86 0.3189 0.1626 1.9617 -0.0001 sp87 -0.3003 0.1764 -1.7026 0.0004 sp88 0.9611 0.1787 5.3790 0.0001 sp89 -0.7734 0.4342 -1.7812 -0.0003 sp810 0.7396 0.3169 2.3341 -0.0003 sp811 -0.2149 0.1262 -1.7032 0.0000 sp812 -0.0714 0.0409 -1.7442 0.0000 sp813 -0.0210 0.0120 -1.7565 0.0000 sp814 -0.0066 0.0039 -1.7043 0.0000 sp92 -0.3967 0.1549 -2.5603 0.0003 sp93 0.5837 0.0840 6.9449 -0.0002 sp94 -0.9070 0.0658 -13.7811 0.0007 sp95 0.0168 0.1263 0.1333 -0.0009 sp96 -0.3463 0.0924 -3.7470 0.0005 sp97 0.8721 0.0954 9.1385 0.0004 Preliminary version / Concordia U

Appendix (baseline model estimates) sp98 -0.3698 0.0815 -4.5388 -0.0004 sp99 -0.1967 0.1193 -1.6486 -0.0003 sp910 -0.1375 0.0812 -1.6933 -0.0001 sp911 -0.2731 0.1329 -2.0548 0.0000 sp912 -0.0983 0.0477 -2.0608 0.0000 sp913 -0.0316 0.0185 -1.7058 0.0000 sp914 -0.0046 0.0029 -1.5714 0.0000 sp102 0.2249 0.1999 1.1252 0.0003 sp103 -0.7186 0.1299 -5.5321 0.0001 sp104 -0.2193 0.1207 -1.8169 0.0002 sp105 -0.5780 0.1079 -5.3580 -0.0001 sp106 0.3125 0.1690 1.8494 -0.0002 sp107 -0.2344 0.1153 -2.0336 0.0003 sp108 -0.2399 0.0956 -2.5095 0.0004 sp109 -0.7192 0.2309 -3.1150 0.0002 sp1010 0.3666 0.1029 3.5643 0.0002 Preliminary version / Concordia U

Appendix (baseline model estimates) sp1011 -0.8572 0.4547 -1.8854 0.0002 sp1012 -0.3231 0.1710 -1.8899 0.0001 sp1013 -0.1044 0.0555 -1.8815 0.0000 sp1014 -0.0264 0.0142 -1.8563 0.0000 sp112 -0.5075 0.2696 -1.8824 -0.0003 sp113 -0.4372 0.1688 -2.5898 0.0002 sp114 -0.6102 0.1575 -3.8732 0.0002 sp115 0.0923 0.1324 0.6966 0.0000 sp116 -1.3027 0.3578 -3.6413 0.0000 sp117 0.1722 0.0805 2.1393 0.0003 sp118 -0.0601 0.1166 -0.5157 0.0000 sp119 -1.2105 0.5625 -2.1520 0.0000 sp1110 -0.6145 0.2805 -2.1905 0.0000 sp1111 -0.2750 0.1273 -2.1604 0.0000 sp1112 -0.1193 0.0564 -2.1153 0.0000 sp1113 -0.0455 0.0221 -2.0558 0.0000 sp1114 -0.0124 0.0062 -2.0001 0.0000 Preliminary version / Concordia U

Appendix (baseline model estimates) wkstart 0.0007 0.0005 1.6034 0.0001 edstart 0.1528 0.0393 3.8932 -0.0003 intw1 1.8511 0.0121 152.4260 0.0001 wedret 0.0873 0.0022 40.3846 -0.0003 weep 0.0405 0.0019 21.2621 0.0005 sigw 0.4695 0.0029 159.2236 0.0000 stu1 -1.8507 0.0382 -48.4215 0.0000 stu2 -0.8271 0.0221 -37.3555 0.0000 stu3 0.6912 0.0215 32.1954 0.0000 stu4 1.9087 0.0410 46.5421 0.0000 Preliminary version/ Concordia U

Appendix cpi_1994 = 0.92; cpi_1995 = 0.95; cpi_1996 = 0.98; cpi_1997 = 1; cpi_1998 = 1.02; cpi_1999 = 1.04; cpi_2000 = 1.07; cpi_2001 = 1.10; cpi_2002 = 1.12; cpi_2003 = 1.15; cpi_2004 = 1.18; cpi_2005 = 1.22; cpi_2006 = 1.26; cpi_2007 = 1.29; preliminary/ Concordia U