August 21, 2007

1995-2005: Foreign-Born Latinos Make Progress on Wages

II. Foreign-Born Workers in the Wage Distribution

Immigrants are more likely to be low-wage workers than high-wage workers. However, there are notable differences among foreign-born workers depending on their origins and year of entry. In the aggregate, half of foreign-born workers were in either low-wage groups or low-middle groups in 2005. Most foreign-born Latinos are also in the lower wage brackets—in 2005, two-thirds were either low-wage earners or low-middle earners. On the other hand, about half of Asian immigrant workers were high-wage earners or high-middle earners. And the longer a worker has been in the U.S., the more likely that person is to be a high-wage earner.

Even though foreign-born workers are more likely than average to be in the low-wage group, many of them made notable progress in the wage distribution between 1995 and 2005. Foreign-born Latinos, especially those from Mexico and Central America, moved out of the low end of the wage distribution and toward the middle. Foreign-born Asians moved into the high end of the wage distribution in relatively large numbers.

Moreover, newly arrived foreign-born workers, especially Hispanics, were less likely to be in the lowest wage class in 2005 than in 1995. That reflected a higher level of education for new arrivals and a boost from the construction industry.

This section first examines the employment of foreign-born workers at various points of the wage distribution in 2005. It then focuses on changes in employment by wage class for foreign-born workers between 1995 and 2005, highlighting the experiences of Mexican-born and newly arrived workers.

Foreign-Born Workers Leaned to Lower-Wage Employment in 2005

About half of foreign-born workers were in either the low-wage group or the low-middle group in 2005. If foreign-born workers were spread evenly across the wage distribution, about 40% of them would be expected to fall into those two wage groups. As a result, their representation in the low-wage groups exceeded the norm by about 10 percentage points.

More specifically, there were 18.3 million foreign-born workers for whom wage data were available in 2005 (Table 3). Of that total, 4.9 million (27%) were low-wage workers and 4.3 million (23%) were in the low-middle range.

Among foreign-born workers, Latinos were the most likely to be in the lower wage groups—about two-thirds were in the low-wage group or the low-middle group. Of 9.3 million foreign-born Latinos in the workforce in 2005, 3.3 million About half of foreign-born workers were in either the low-wage group or the low-middle group in 2005. If foreign-born workers were spread evenly across the wage distribution, about 40% of them would be expected to fall into those two wage groups. As a result, their representation in the low-wage groups exceeded the norm by about 10 percentage points.

More specifically, there were 18.3 million foreign-born workers for whom wage data were available in 2005 (Table 3). Of that total, 4.9 million (27%) were low-wage workers and 4.3 million (23%) were in the low-middle range.

Among foreign-born workers, Latinos were the most likely to be in the lower wage groups—about two-thirds were in the low-wage group or the low-middle group. Of 9.3 million foreign-born Latinos in the workforce in 2005, 3.3 million (36%) were low-wage workers and 2.6 million (29%) were low-middle workers. Only 6% of foreign-born Hispanics were high-wage workers in 2005.

The wage distribution of foreign-born Asians stands in stark contrast to the distribution of Hispanics. About half of those workers were in either the high-wage group or the high-middle group in 2005. In particular, of the total employment of 4.1 million Asian workers, 1.2 million, or 30%, were in the high-wage group and 791,000, or 19%, were in the high-middle group.

The likelihood of being a low-wage worker was highest for workers from Mexico and those who had been in the U.S. for five years or less (year of entry 2000 or later). Among either group, 40% were low-wage workers in 2005 and an additional quarter or more were in the low-middle group (Table 4). Only 4% of Mexican-born workers and 11% of recent arrivals were high-wage workers in 2005.

Progress for Foreign-Born Hispanics and Asians

The low-wage status of many foreign-born workers in 2005 belies their significant progress in the preceding 10-year period. In particular, Latinos moved out of the low end of the wage distribution and toward the middle. Foreign-born Asians increased their presence in the higher ends of the wage distribution.

Foreign-born Latinos were much less likely to be low-wage workers in 2005 than in 1995. As shown in Figure 1, 36% of foreign-born Latinos were low-wage workers in 2005, well above the average of 20% for the labor force as a whole. But that still represented considerable progress over 1995, when 42% of foreign-born Latinos were in the low-wage group. Over the same period, the proportion of Latinos in the low-middle group increased slightly from 26% to 29%, and the proportion in the middle-wage group inched up from 17% to 19%.

Asian workers made strong strides into the high-wage group between 1995 and 2005 (Figure 2). The proportion of foreign-born Asian workers in the high-wage group in 2005 (30%) was notably higher than the proportion in 1995 (25%). At the same time, the percentage of Asian workers who were in either the low-wage group or the low-middle group dropped from 38% in 1995 to 32% by 2005.

Growth Fastest in Middle- and High-Wage Classes

Implicit in the improving wage profile of foreign-born workers is the fact that they experienced faster growth in employment in the middle to upper points of the wage distribution between 1995 and 2005. That was true for both Hispanic and Asian workers. In absolute numbers, however, foreign-born Hispanics added more low-wage than high-wage workers.

Total employment of foreign-born workers increased 78% from 1995 to 2005 (Figure 3). But employment growth in the lowest wage class (59%) was well below that average. At the same time, employment of foreign-born workers in the high-middle and high-wage classes increased at much higher rates than the average—95% and 88%, respectively.

A similar pattern emerged for Latino workers (Figure 4). Employment of foreign-born Hispanics increased 83% between 1995 and 2005. But employment growth was much faster in the middle of the wage distribution, ranging from an increase of 104% for Latinos in the low-middle group to an increase of 112% for those in the high-middle group. Growth in Latino employment in the lowest wage class (57%) was well below average.

While employment growth for foreign-born Hispanics in the low-wage class was slower than average, in absolute numbers they added more low-wage than high-wage workers to the labor force between 1995 and 2005. Given the large initial number of foreign-born Latinos in the low-wage class (2.1 million), the 57% growth translated into the addition of 1.2 million low-wage workers between 1995 and 2005. On the other hand, the 112% growth in the high-middle group for foreign-born Latinos amounted to the addition of 486,000 workers. Thus, even though foreign-born Latinos are progressing up the wage ladder, their increasing numbers at the bottom of the wage distribution divert attention from that trend.

The number of foreign-born Asians at the top of the wage distribution nearly tripled between 1995 and 2005. As shown in Figure 5, the employment of foreign-born Asians in the highest wage group increased 174% from 1995 to 2005. In absolute terms, that was a gain in high-wage employment from 451,000 to 1.2 million. Over the same period, the number of foreign-born Asians employed in the high-middle group increased 162%.

Workers Born in Mexico and Central America Move Out of Low-Wage Work

Workers born in Mexico were a key source of the improvement in the wage distribution of the foreign born. They account for about one-third of all foreign-born workers and exert a significant influence on the overall wage profile. As Mexican-born workers progressed in the wage distribution, so did the earnings status of foreign-born workers in general.

There was a large drop in the proportion of Mexican-born workers in the lowest wage class between 1995 and 2005. In 1995, 48% of workers from Mexico (1.5 million out of 3.1 million) placed in the low-wage group (Figure 6). By 2005, that proportion had decreased to 40%, or 2.3 million out of 5.8 million Mexican-born workers. At the same time, the proportion of Mexican-born workers in the middle-wage class increased from 15% to 19%.

The employment of Mexican-born workers increased at higher than average rates in the middle- and upper-wage classes between 1995 and 2005. Total employment of these workers increased 86%, but employment growth in the lowest wage class was only 55% (Figure 7). Meanwhile, employment of Mexican-born workers in the other wage classes increased 100% or more. Therefore, relatively more workers born in Mexico could be found in higher wage classes in 2005.

The experience of workers born in Central America mirrors the progress of Mexican-born workers in the wage distribution. The proportion of workers born in Central America in the lowest wage class decreased from 44% in 1995 to 33% in 2005 (Figure 8). At the end of the 10-year period, greater proportions of workers born in Central America could be found in the low-middle group (29% versus 24%) and middle-wage group (21% versus 18%). The wage distribution of workers born in the Caribbean or in South America was fairly stable between 1995 and 2005.

Newly Arrived Hispanics Enter Into Higher Wage Work

Time spent in the U.S. labor market facilitates a foreign-born worker’s transition from the lower to the higher reaches of the wage distribution. The longer a foreign-born worker is in the U.S., the more likely that worker is to be found in the higher wage classes. Another key factor in the improving wage profile of foreign-born workers between 1995 and 2005 is that the newly arrived are now entering at higher points in the wage distribution. That is especially true of newly arrived Hispanic workers.

Foreign-born workers who entered the U.S. before 1970 were the most likely to be in the highest wage class. In 1995, 28% of those workers were in the high-wage class, compared with 19% of those who arrived between 1970 and 1979 and 10% of those who arrived between 1980 and 1989 (Table 5). Conversely, newer arrivals were more likely to be in the lower wage classes. For example, 34% of entrants from 1980 to 1989 were in the lowest wage class, compared with 15% of those who entered before 1970.

Part of the reason earlier arriving cohorts place better in the wage distribution is that they have higher levels of education and other attributes correlated with higher wages (Borjas, 1985). Therefore, it is of interest to examine the progress of individual cohorts, such as those who entered between 1980 and 1989, over time. Subject to one caveat—the disproportionate out migration of low-wage or high-wage workers—the change in the wage profile of a specific cohort of foreign-born workers is a clearer indication of progress over time.

Wage profiles of all cohorts of foreign-born workers show improvement between 1995 and 2005. Consider those who entered between 1980 and 1989. About one-third (34%) were in the lowest wage class in 1995 (Table 5). That proportion decreased to 22% by 2005. Over the same period, the proportion of these workers in the highest wage group increased from 10% to 17% and the proportion in the high-middle group increased from 11% to 17%. Similar signs of progression in the wage distribution are evident for those who arrived between 1970 and 1979.

Newly arrived workers, defined as those who entered within the past five years, reveal an improved wage profile in 2005 in comparison with 1995. In 1995, 45% of new arrivals (year of entry 1990 or later) were in the lowest wage class (Table 5). By 2005, the proportion of new arrivals (year of entry 2000 or later) in the low-wage group had decreased to 40%.

The progress in the wage profile of new arrivals is driven by Hispanic workers. Whereas 64% of newly arrived Latinos were in the lowest wage class in 1995, the proportion for newly arrived Latinos in 2005 was 50% (Figure 9). More newly arrived Latinos could also be found in the middle of the wage distribution—15% in 2005, compared with 10% in 1995. The wage profile of newly arrived non-Hispanic workers was unchanged between 1995 and 2005.

The earnings of new arrivals in 2005 are improved in comparison with the earnings of new arrivals in 1995 partly because they have higher levels of education and are older. Newly arrived Hispanic workers in 2005 were more likely to have a high school degree or to have attended college (Table 6). Similarly, new arrivals in 2005 were less likely to be young (age 16 to 24) and more likely to be middle-aged (Table 7). Age and education both correlate positively with wages.

Another factor is a shift away from jobs in agriculture to those in the construction sector. In 1995, 10% of newly arrived Hispanic workers were employed in agriculture and 11% were in construction. By 2005, only 5% entered into agriculture and 25% were hired into construction. Earnings in agriculture are known to be below average, and earnings in construction are above average. Thus, newly arrived immigrants in 2005 reported higher earnings than those who arrived in 1995.

A full accounting of the industry distribution of workers in 1995 and 2005 is not possible because of significant revisions in the definitions of industries in the source data.