Human Capital and Development Accounting: New Evidence from Wage Gains at Migration

Abstract

We use new data on the pre- and postmigration wages of immigrants to the United States to measure wage gains at migration. The average immigrant from a middle-income or poor country increases their wage by a factor of two to three upon migration. This wage gain is small relative to the underlying gap in GDP per worker. In a development accounting framework, this finding implies that switching countries accounts for 40% of cross-country income differences, while human capital accounts for 60%. Wage gains decline with education, consistent with imperfect substitution between skill types. We augment our analysis to allow for this possibility and bound the human capital share in development accounting to between one-half and two-thirds. We also provide results on the importance of premigration sector of employment, assimilation, and skill transfer.