August 21, 2007

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

III. The Growth in Foreign-Born Employment

The demographic composition of employment in the U.S. underwent significant change between 1995 and 2005. The 105.7 million workers for whom hourly wage data were available in 1995 included 10.3 million foreign-born workers (Table 8). By 2005, the number of foreign-born workers had increased to 18.3 million and their share in employment had increased from 10% to 15%.

Foreign-born workers alone accounted for 49% of the total change in employment between 1995 and 2005. The most significant contributors to the change in the foreign-born workforce were Latino and Asian workers, who were responsible for 6.5 million of the 8 million new foreign-born workers, or 81%.

The rapid growth in the foreign-born population ensured that its share increased within all segments of the wage distribution in between 1995 and 2005. As discussed earlier, even a relatively slow growth rate translated into significant numbers of new low-wage Latino workers. This section presents an alternative portrait of the growth in employment of foreign-born workers at different points of the wage distribution.

Expected and Actual Change in Employment by Wage Class

Two trends combine to determine the characteristics of the workforce at an interval in the wage distribution. One trend is demographic, i.e., the growth in a population. Unless accompanied by changes in the characteristics of the population, the demographic effect is neutral and would be expected to increase the share of a group uniformly in all wage classes. For example, a 10% increase in the foreign-born population might be expected to lead to the same proportional increase in the numbers of low-, middle- and high-wage foreign-born workers.

But the actual increase in the share of a group within a wage class depends on other factors as well. In particular, it also depends on changes in the socioeconomic profile of the group as well as the changes in the characteristics of other workers.

For example, if the growth in the foreign-born population is accompanied by higher levels of education, the share of foreign-born workers will tend to increase more in the middle to higher points in the wage distribution. But this progress can be “disguised” by changes in the characteristics of other groups of workers.

Suppose that native-born workers raise their education level and progress up the wage ladder even faster than foreign-born workers. That will tend to dampen the rising share of foreign-born workers in the higher ends of the wage distribution. By the same token, as native-born workers transition out of the low ends of the wage distribution, that will boost the share of foreign-born workers in the low-wage workforce even as they are making progress of their own.

The following section explores the net effects of these forces in 1995 to 2005 and sheds light on whether the share of foreign-born workers within the low-, middle- and high-wage workforces has exceeded or fallen short of expectations.

Better Than Expected Results for Foreign-Born Workers

As the number of foreign-born workers increased, they also made progress within the wage distribution. In particular, foreign-born Latinos increased their representation in the middle-wage workforce more than expected and their share in the low-wage workforce grew less than expected based on demographic trends alone. Foreign-born Asian workers moved into the high-wage workforce in greater numbers than expected between 1995 and 2005.

The rapid growth in their numbers translated into higher shares for foreign-born Latinos and Asians at all points of the wage distribution (Figure 10). Foreign-born Hispanics were 10% of the low-wage workforce in 1995 and 14% in 2005. Further, they almost doubled their share in the middle-wage workforce in that period, from 4% to 7%. Foreign-born Asians more than doubled their share in the high-wage workforce, from 2% in 1995 to 5% in 2005.

The increasing share of foreign-born Hispanics in the low-wage group conceals their underlying progress in earnings. In 1995, 42% of foreign-born Hispanic workers placed in the lowest wage group. If there had been no change in the wage profile of foreign-born Latinos between 1995 and 2005, the same proportion—42%—would be expected in the lowest wage group in 2005. Thus, the total number of foreign-born Hispanics in the low-wage workforce in 2005 would have been expected to be 3.9 million, or 42% of the 9.3 million foreign-born Latinos in the workforce (Table 8).

In reality, the actual number of foreign-born Latinos in the lowest wage class was 3.3 million (Table 9). In other words, the increase in low-wage, foreign-born Hispanic workers was 564,000, or 17%, less than expected in the 10-year period. That difference represents an estimate of the (net) number of foreign-born Latinos who transitioned out of the low-wage workforce between 1995 and 2005.

At the same time, the increase in the number of middle-wage, foreign-born Hispanic workers was 194,000, or 11%, more than expected (Table 9). Based on demographic trends alone, 1.6 million foreign-born Latino workers were expected to be in the middle-wage group in 2005. However, the actual number of middle-wage, foreign-born Hispanics workers in 2005 was 1.8 million.

Foreign-born Asians moved into the high-wage class in larger numbers than expected. They added 216,000 workers, or 17%, more than anticipated into the high-wage workforce. At the same time, their numbers grew much less than anticipated in the low-wage group (21%) and the middle-wage group (11%).

Cite this publication: Rakesh Kochhar. “1995-2005: Foreign-Born Latinos Make Progress on Wages.” Pew Research Center, Washington, D.C. (August 21, 2007) http://www.pewhispanic.org/2007/08/21/1995-2005-foreign-born-latinos-make-progress-on-wages/, accessed on July 23, 2014.