Much of the recent immigration literature has sought to understand immigrants’ economic adjustment, as measured by their earnings. The economic framework for this type of analysis was set out in Chiswick (1978) (1979). The early studies, based primarily on cross-sectional data, established an important empirical regularity: immigrant earnings improved rapidly at first and then at a slower rate with duration of residence in the host country.
There has been some questioning of this type of result. Using data from the 1970 U.S. Census, Chiswick (1980) was the first to raise the question as to whether the cross-sectional estimates were biased estimates of the longitudinal adjustment process, and concluded there was no obvious significant bias. The cross-section may provide biased estimates of the longitudinal effects if there is selectivity in the return migration of immigrants, or if there are changes over time in the unmeasured dimensions of the quality of immigrants. In particular, the cross-section provides upward biased estimates if the least successful of immigrants have a greater propensity to remigrate or if more recent immigrant cohorts have lower unmeasured dimensions of ability relevant for the labor market. Borjas (1985) has argued that a decline over time in unmeasured dimensions of immigrant quality is responsible for the observed positive effect of duration on immigrant earnings in cross-sectional data, and that there is no assimilation effect. This interpretation has been disputed by Chiswick (1986) and Duleep and Regets (1996, 1997), among others.
The problem facing applied researchers is that determining whether immigrants experience growth in earnings requires longitudinal data, and there are few longitudinal data sets available that contain a sufficient number of observations on immigrants for statistical analysis. The Longitudinal Survey of Immigrants to Australia, Panel I (LSIA) is one exception to this general situation. This is a survey of 5,192 immigrants who arrived in Australia in the period 1993-1995. These immigrants were followed for their first 3½ years in Australia. While this is a short panel, the quality of the data and the lack of alternative data sets make it an extremely valuable resource for the analysis of the immigrant adjustment phenomenon. Moreover, it would be expected that the labor market adjustment of immigrants would be most pronounced in their first few years in the destination.
The structure of this paper is as follows. Section II provides details on the Longitudinal Survey of Immigrants to Australia, including a review of the earnings data. Section III outlines the hypotheses and the statistical framework. Section IV presents the empirical findings, while Section V contains a summary and conclusion.
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