OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

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How self-sorting affects migrants’ labour market outcomes

Assuming that immigrants select destinations according to absolute returns to their observable and unobservable human capital, I present a human capital model of migration accounting for taxes, transfers and limited portability of skills. The model predicts both segmented sorting of migrants to countries with a compressed income distribution, with negative sorting increasing with lower portability and positive sorting increasing with portability. Sorting to countries with greater income dispersion increases unambiguously with host-country relevant skills. Migrants to countries with compressed incomes will hence be more likely to be either out of work or overqualified and low-paid compared to natives with similar observable skills, and compared to migrants to countries with greater income dispersion. Regressions results on data for 16 OECD countries from the OECD Survey of Adult Skills are in line with the model. Controlling for observable skills and characteristics, including a literacy test score, immigrants from countries that are less wealthy or further away in geographical and cultural distance are significantly more likely to be either out of work or overqualified and low-paid in high-benefit countries. Wage compression, generous transfers and high taxes, typical traits of the so-called “Nordic” or “Flexicurity” model, may therefore contribute to making immigrant integration more challenging.


JEL: J61: Labor and Demographic Economics / Mobility, Unemployment, Vacancies, and Immigrant Workers / Geographic Labor Mobility; Immigrant Workers; J15: Labor and Demographic Economics / Demographic Economics / Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination; J24: Labor and Demographic Economics / Demand and Supply of Labor / Human Capital; Skills; Occupational Choice; Labor Productivity; J18: Labor and Demographic Economics / Demographic Economics / Demographic Economics: Public Policy
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