Ethnic Inequality in the Labour Market: The Transferability of Skills and Degrees

Migrants are less successful in the labor market than natives, relative disadvantages that are often referred to as “ethnic penalties.” Previous research estimated these penalties using education as a proxy for skills. However, highly educated individuals are not only rewarded by employers for their skill levels, but also for the signaling value of their degree Although most studies that estimate ethnic penalties usually acknowledge the existence of these two mechanisms, empirical work that incorporates this is extremely scarce. In this study, we include a measure of both cognitive (numeracy, literacy) and non-cognitive (motivation) skills, which allows us to separate mechanisms that explain the educational payoff of migrants. This increases our knowledge of how the transferability of skills and degrees affects ethnic inequality in the labor market. We analyze both unemployment risk and income.

The paper furthermore contributes to the literature on ethnic inequality in the labor market by explaining variation in ethnic penalties across countries with varying institutional contexts. Studies that structurally analyze variation in penalties across countries are scarce, and there is no comparative work that analyses the role of skills in reducing ethnic penalties across countries. We identify three institutional conditions that are especially important in explaining cross-national variation: the educational system, labor market flexibility, and immigration policies.

Empirical analyses are based on the PIAAC 2013 data (Programme for the International Assessment of Adult Competencies). The data include detailed measures of cognitive and non-cognitive skills. Furthermore, the PIAAC allows for a cross-national analysis.