Abstract

Immigrant over-education in the United States is well documented, but its mechanism is not. I develop a signaling model in which an employer friction, together with rules that bar paying an immigrant less than a native in the same job, moves the adjustment from the wage to the job: immigrants keep their degrees and take jobs that require less education, by less at higher degrees. Using a new LinkedIn panel that follows college graduates across borders, I find that at their first US job, immigrant master’s holders with a US degree and with only foreign degrees are 4.1 and 8.5 percentage points more likely to be over-educated than comparable US-educated workers. The gap is smaller for doctorate holders, and positive for those with a US degree at employers subject to the H-1B cap; it is largest, 16.0 points, for foreign-trained professionals such as physicians and lawyers, who must relicense. Over a decade, the occu- pational wage penalty specific to foreign degrees halves for doctorate and professional-degree holders but narrows by only a fifth for master’s holders. The 2008 STEM Optional Practical Training extension, which lengthened work authorization without changing training, raised US career starts among 2008–2011 STEM master’s graduates by 3.7 percentage points, and stayers moved into their field and into higher-paying occupations, mostly at employers subject to the H-1B lottery. The friction has more than one source, and part of it is a cost that policy can remove, not a productivity gap.

Country of study

United States

Research Topic(s)