GENERATIONAL DIFFERENCES IN ECONOMIC OUTCOMES OF IMMIGRANTS: Evidence from Norway

The children of 1970s immigrants from Pakistan and Turkey have assimilated well into Norwegian society, achieving educational and labour market outcomes that are similar to those of natives. What”s more, in contrast with their immigrant parents, ”second-generation” daughters born in Norway have fertility patterns like those of native women.

But for the early immigrants themselves, despite high employment rates and earnings during the first decade or so after their arrival, their labour market performance since has been very poor. There remain considerable employment and earnings gaps relative to natives with similar educational attainment; and many are dependent on benefits.

These are among the findings of new research by Professors Bernt Bratsberg, Oddbjørn Raaum and Knut Røed, published in the November 2014 issue of the Economic Journal. Their study examines how immigrants perform over the short and long term in a welfare state economy like Norway; and whether immigration alleviates or adds to the country”s fiscal challenges?

This study shows that while immigrants from other high-income countries have lifecycle labour market careers that resemble those of natives, immigrants from low-income countries tend to have relatively short employment careers followed by reliance on social insurance.

This includes the important wave of male labour migrants that came to Norway from Pakistan and Turkey in the early 1970s. This group had very high employment rates and earnings during the first 10 to 12 years of residence, but have since experienced a steep decline with employment falling 40 percentage points below that of similarly aged natives and earnings one third of natives. More than 60% are dependent on disability insurance benefits in their late fifties.

Is this somewhat discouraging experience unique – or is it a structural aspect of the encounter between immigrants from low-income countries and a rich and generous welfare state?

To shed light on these questions, the researchers examine the long-term labour market performance of all major immigrant groups to Norway since the early 1970s. In addition, they study the early educational performance of the ”second generation” – the children of the early immigrant cohorts.

The findings paint a mixed picture. For the large group of ”chain migrants” that arrived through family reunification, as well as for the large refugee cohorts of the 1980s and 1990s, the study does identify significant labour market assimilation during the initial period after arrival.

But the assimilation process is exhausted after 10 to 15 years in the country, at which point there remain considerable employment and earnings gaps relative to natives with similar educational attainment. And following the initial period of labour market assimilation, social insurance dependency rises rather inexorably with years since arrival even for these immigrant groups.

The researchers discuss the possible causes behind the apparent failure to achieve a more persistent and stable labour market assimilation process. Business cycle fluctuations play a major role in this story, as immigrants from low-income countries are more vulnerable to the state of the labour market than natives. They lose their jobs more easily during slumps and find it more difficult to adapt to new industries and occupations.

In addition, the social insurance system yields high replacement ratios for immigrants. This is due to a combination of their relatively low expected labour earnings and their relatively high expected social insurance benefits, the latter owing to a benefit structure favouring those with many dependants.

Despite the lack of stable labour market attachment in the parent generation, the children of the early labour immigrants from Pakistan and Turkey assimilate quite well into Norwegian society. Although it is too early to draw firm conclusions about lifecycle outcomes, the findings indicate considerable convergence towards the educational attainment, employment and earnings of natives, particularly for second-generation offspring born in Norway.

The researchers also find evidence of a rapid convergence to native fertility patterns from one generation to the next. For example, while female immigrants who arrived during the 1970s had on average given birth to 3.4 children at age 35 – roughly twice as many as that of native women – their daughters born in Norway had only given birth to 1.9 children at that age – just 0.2 above the native average.

”Immigrants, Labour Market Performance and Social Insurance” by Bernt Bratsberg, Oddbjørn Raaum and Knut Røed is published in the November 2014 issue of the Economic Journal. The authors are at the Ragnar Frisch Centre for Economic Research at the University of Oslo.