Friday, May 25, 2012

Why Indian immigrants earn higher than others in America?

Immigrants born in India outdo others in achieving economic success in the Untied States. At the same time, Pakistan-born immigrants, while trailing behind Indians, do better than the native-born Americans. While both immigrant groups originate in South Asia, huge disparities in their economic success exist in the US that needs further exploration.

The estimates reported in the 2010 American Community Survey revealed that the median salaried household income of India-born immigrants was around $94,700. In comparison, the median household income of native-born Americans was estimated at $51,750. Unlike the Pakistan-born immigrants in Canada, who lagged behind others in economic prosperity, Pakistanis in America are relatively thriving where the median household income of Pakistan-born immigrants is 18% higher than that of the native-born Americans.

The American Community Survey for 2010 (latest data available from the US Census Bureau) reveal that amongst South Asians living in the US, India-born immigrants are far ahead of Pakistanis, Bangladeshis, and Afghanis. Even when compared with immigrants from Egypt, a country known for supplying highly educated immigrants to the US, Indians report exceptionally higher indicators of economic progress.

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Source: American Community Survey, 2010

Indian-born immigrants also reported one of the lowest poverty rates at 4%. Afghanistan-born immigrants reported the highest poverty rate where one in five Afghan immigrants was deemed below the poverty line in the US. While Pakistan-born immigrants reported higher median household incomes than the native-born Americans, surprisingly 14% of the Pakistan-born immigrants were below the poverty line compared to only 9.4% of the native-born Americans.

Another indicator of financial distress amongst households in North America is the percentage of household income spent on gross rent. Households spending 30 percent or more of household income on rent are considered financially distressed. Amongst households who live in rental units, 57% of the immigrants from Pakistan, Bangladesh, and Egypt spent more than 30% of the household income on rent compared to only 24% of immigrants from India.

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Source: American Community Survey, 2010

These poverty statistics raise several questions. For instance, despite having similar South Asian heritage, Pakistan-born immigrants report a 2.4-times higher rate of poverty than their Indian counterparts. Furthermore, poverty among younger cohorts (18 years old or younger) is even worse amongst immigrants from Pakistan than from India. At the same time almost 50% of under-18 Afghan immigrants are reportedly below the poverty line in the US. These statistics necessitate the need to explore the reasons behind disparities amongst immigrants from South Asia.

I am presenting here a socio-economic comparison of South Asians in the US. I have restricted the reporting to immigrants from India, Pakistan, Bangladesh, and Afghanistan. This is done because India, Pakistan, Bangladesh, and to some extent Afghanistan have more in common in culture and recent history than other countries in South Asia. I have thrown in Egypt for good measure to serve as a control for immigrants from another Muslim country with a different cultural background.

The purpose of this comparative review is to determine what are the reasons behind the success of India-born immigrants in the US. Could it be that the immigrants from India had luck on their side, or could it be that Indian immigrants possessed the necessary ingredients to succeed in the highly competitive labour market in the United States. More importantly, one needs to explore why immigrants from Pakistan and Bangladesh lag behind those from India in achieving the same levels of economic success.

The immigrant wage gaps have been a focus of several studies in the past. A whole host of theories have been forwarded to explain why such gaps exist. For instance, Nielsen and others (2001) suggest that such gaps exist because of lack of adequate qualifications and assimilation of immigrants in the mainstream. They believe that a “large fraction of that gap would disappear if only immigrants could find employment and thus accumulate work experience.” Aldashev and others (2008) found that the immigrant wage gap in Germany was lower for those who studied in Germany suggesting that improving education in Germany improves immigrants’ income prospects.

Sizing the South Asians

With approximately 1.8 million individuals, India- born immigrants form the largest cohort amongst South Asians in the US. The American Community Survey (ACS) in 2010 estimated Pakistan-born immigrants at 300,000, Bangladesh-born immigrants at 153,000, and Afghanistan-born immigrants at 60,000. Egypt-born immigrants totalled 133,000. Immigrants from India were approximately six-times the size of Pakistan-born immigrants. The relatively large size of Indian immigrants leads to larger social networks, which help with searching for better employment prospects.

Despite their large size, most India-born immigrants in the US are recent arrivals. Whereas 47% of the India-born immigrants arrived in the US after 2000, only 36% of the Pakistan-born immigrants arrived after 2000. This suggests that the economic success of immigrants from India is driven by the recent arrivals. Relatively speaking, immigrants from Afghanistan have enjoyed the longest tenure in the US of all South Asian countries discussed here. Notice that while 42% of immigrants from Afghanistan arrived in the US before 1980, only 25% of the Indian immigrants accomplished the same.

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Source: American Community Survey, 2010

Pakistanis have larger families

With 4.3 persons per households, immigrants from Pakistan and Afghanistan reported significantly larger family sizes. In comparison, the native-born population reported a household size of 2.6 persons whereas the size of India-born immigrant households was around 3.5 persons. The difference between immigrants from India and other South Asians is more pronounced when one looks at the per capita earnings. Owing to their smaller household size, immigrants from India reported significantly higher per capita incomes than the rest. For instance, Bangladesh-born immigrants reported 50% less in median per capita income than those from India. And while immigrants from Pakistan reported higher household incomes than the immigrants from Egypt, the larger household size of Pakistan-born immigrants brought their per capita incomes lower than that of Egyptians.

Larger household size results in overcrowding, especially amongst low-income households, who often live in rental units. The average household size of rental households from Pakistan was found to be 33% larger than the same from immigrants from India. 15% of households from Pakistan were found to have more than one occupant on average per room compared to only 6% of those from India.

Women in the Labour Force

A key source of distinction between the immigrants from India and other South Asians is the higher participation of Indian women in the labour force. A much higher integration of women in the labour force is one of the reasons why immigrants from India have fared much better than others in the United States. Consider that only 42% of the women from Pakistan were active in the labour force in the US compared to 57% women from India. In fact women from Pakistan reported the lowest participation in the labour force in the US falling behind women from Egypt, Afghanistan , and Bangladesh.

Education Matters the Most

It should come as no surprise that immigrants from India are one of the most educated cohort in the United States. Almost 42% of immigrants from India over the age of 25 reported having a graduate (Masters) or a professional degree. In comparison, only 10% of the native-born adults reported having a graduate or professional degree. Approximately 23% of adult immigrants from Egypt and Pakistan reported having a graduate or professional degree.

The correlation between higher education attainment and higher median household incomes is explicitly presented in the graph below. India-born immigrants with professional degrees also reported significantly higher incomes than the rest. In comparison, immigrants from Afghanistan with one of the lowest incidence of professional degrees reportedly the lowest median household incomes.

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Source: American Community Survey, 2010

The gender divide is again instrumental between immigrants from India and the rest. Whereas 70% of the India-born female adults reported having a Bachelors degree or higher, only 46% of adult females born in Pakistan reported the same in the US. At the same time only 28% of the native-born female adults in the US reported completing university education.

Better Education Better Careers

The education attainment levels amongst adult immigrants determine, to a large extent, their career choices. University education resulting in professional or graduate degrees allows immigrants to qualify for well-paying jobs in the US. Immigrants from India have been able to use their high-quality education to make inroads in the high-paying employment market. One is therefore hardly surprised to see that of the adult employed population, 70% immigrants from India are working in occupations focussing on management, business, science, and arts. In comparison, only 44% of immigrants from Pakistan ad 33% immigrants from Bangladesh are employed in similar occupations.

What Have We Learnt

"Give me your tired, your poor,

Your huddled masses yearning to breathe free,

The wretched refuse of your teeming shore.

Send these, the homeless, tempest-tost to me,

I lift my lamp beside the golden door!"

In 1883, Emma Lazarus asked for the tired, the poor, and the wretched refuse. India instead sent its very best to the United States. Instead of the huddled masses, graduates from Indian Institutes of Technology and Management arrived in hundreds of thousands at the American shores. These immigrants were products of a sophisticated higher education system whose foundations were laid by Pandit Nehru in early fifties.

In the rest of South Asia, especially in Pakistan and Bangladesh, education has never been a national priority. The results of such conflicting priorities are obvious. Graduates from Indian universities are outdoing others in competitive labour markets at home and abroad.

If education is not made a national priority, the gap between Indians and other South Asians will grow at home and in diaspora.

References:

Helena Skyt Nielsen & Michael Rosholm & Nina Smith & Leif Husted, 2004. "Qualifications, discrimination, or assimilation? An extended framework for analysing immigrant wage gaps," Empirical Economics, Springer, vol. 29(4), pages 855-883, December.

Alisher Aldashev & Johannes Gernandt & Stephan L. Thomsen, 2008. "The Immigrant Wage Gap in Germany," FEMM Working Papers 08019, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

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