India Emerging Strong as a Global Hub for Professionals: A Closer look at the Skill Composition and Economic Performance

of Indians in the US
By Basant Potnuru IIMS, Bareilly

A paper presented at a national seminar on India - a Potential Asian Tiger organised on 21-22 Feb, 2005 by Invertis Institute of Management Studies, Bareilly.

Abstract Recently, there has been growing need for professionals in the developed countries, to meet this demand the developed nations had to depend largely on the developing country professionals from Asia and Africa. Owing to this development, India has emerged fast as one of the most and leading sending country nations of professionals to the developed countries. This paper takes a closer look at the skill quality of Indians who had emigrated to US. It highlights the differential quality of human capital Indian-born possessed vis--vis other foreignborn and the US natives in the US in the period 1990-2001. The findings confirm that Indian born in the US belong to much younger working population, having higher levels of education and earn much higher incomes compared to that of the other foreign-born and native-born Americans.

I.

Introduction
1. 2. 3. 4. Increasing Migration Rates Transforming the thinking from Brain Drain to Brain Gain Change in Policy from Restricting Migration to Encouraging Return Migration Schemata of Presentation

II. Review Existing Literature focuses on three substantive issues:

1. 2. 3. How do immigrants perform in the host country? What impact do immigrants impose on the employment opportunities of the natives? Which immigration policy most suits the host country s economy.

Most of the immigration studies discuss the immigrants performance in the host country compared to that of the natives . It was argued that initially immigrants earn lower than that of native-born workers, but gradually they add up to their experience and acquire labour market skills of the host country, and later, catch-up with the natives earnings.

One of the earliest and most cited analysis given by Chiswick (1978) using 1970 U.S. census arrived at the conclusion that:
immigrants earned about 17 percent less than the natives when they entered the US labour market, experiencing faster wage growth they caught up the natives earnings in 15 years, and after 30 years they earned 11 percent more than the comparable native workers.

Why Immigrants earned less than the natives in the beginning and what made them to earn more than them later ?
Immigrants earned lower income when they arrived because the human capital acquired abroad is significantly less valued than the human capital acquired domestically, for the reason that there exist differences from country to country in school-quality, training, language, labour market skills, etc. (Friedberg, 2000). At the time of arrival immigrants lack US specific skills such as English proficiency, information on job search, etc. that are rewarded in the US labour market. Once these skills are acquired, the human capital stock of immigrants grows rapidly than the natives (Chiswick, 1986).

But what made them to earn more than the natives after some time?
The reason for this was attributed to selection argument. This was interpreted as immigrants are more able and more highly motivated than natives (Chiswick,1978; p.900), and they choose to work longer and harder than nonimmigrants (Carliner, 1980; p.89). This argument was also supported by the idea that the most able and most ambitious persons go and settle in the foreign country (Borjas, 1994).

To Conclude the Review:

Thus, the discussion implied that the immigrants start with lower salaries because the skills acquired in their home country does not perform to their full potential, as they take time to adjust in a different labour market environment. But later on because of their superior human capital quality and faster assimilation rates they have earned more than the natives.

III . Age, Education and Income of Foreign-born in the US by Region of Birth

The foreign-born population in the U.S. differs significantly in demographic, age, education and incomes by region of birth.

Foreign-born in the US by Region of Birth: 2000

Other Regions 8% Asia 25%

South America 7% Caribbean 10%

Europe 15% Central America 35%

Population with at least High School Education by Nativity and Region of Birth: 2000 (Percent)
86.6 67 49.6 37.3 81.3 83.8 68.1 86.6 79.6

Median Age and Earnings of the foreign-born by Region of Birth: 2000

Median Age (All People) World Region of Birth Male 37 47.1 38.1 34.3 32.5 40.6 37 39.1 Female 39.3 52.7 40 36.3 33.7 42.3 39.3 37.6 Total 38.1 50 39.2 35.3 33 41.5 38.2 38.5 Median Earnings of Year round Full-time Workers (Dollars) Male 27,143 44,276 36,837 20,955 19,497 26,879 27,410 35,840 Female 22,106 28,172 29,662 17,188 15,325 21,155 23,080 26,920 Total 25,458 35,910 32,779 19,870 17,876 24,449 25,464 32,021

Total Foreign-born Europe Asia Latin America -Central America -Caribbean -South America Other Foreign-born

Thus, it follows that the foreign-born population in the US are not a homogeneous group, as they differed significantly in age, education and earnings between different world-regions of birth. Therefore, it might be imperative to assume that all foreign-born by country of birth may not be earning less than that of the native-born workers, though in general the foreign human capital earns lower rate of return than the domestic human capital.

Hence, it is the source of human capital i.e., from which country it is acquired and the level of development, educational quality, language skills, etc. of that country matters. In addition, the degree of portability of the human capital acquired abroad would determine the wage differential between the immigrants and natives (Friedberg, 2000). The portability of the human capital would be higher if similar labour market conditions, language skills, occupational structure, and institutional settings exist in both the destination and the source country.

IV. Age, Education and Income of Indian-, Other foreign- and Nativeborn Americans in the US

Today, there are as many as, more than 20 million Indians are living outside India, 8.4 percent (1.7 million) of them living in the USA alone. The analyses in this section outline the distinctive nature of the Indian-born population in the US. In addition to being younger, better educated and richer than comparable other foreign-born and native-born population, these trends have been even accelerated considerably in the nineties.

Age Distribution for Native-born in the US: 1990, 1994-2001

Native-born: Year Median Age 1990 1994 1995 1996 1997 1998 1999 2000 2001 32 32 33 33 33 34 34 34 34 < 18 27 28 28 29 28 28 28 28 28 Population Shares of Different Age Groups 18-24 10 10 9 9 9 9 9 10 10 25-44 31 31 31 31 30 30 29 29 28 45-64 19 19 19 20 20 21 21 22 22 65+ 13 12 12 12 12 12 12 12 12

Age Distribution of Indian-born in the US: 1990, 1994-2001

Indian-born: Year Median Age 1990 1994 1995 1996 1997 1998 1999 2000 2001 35 35 37 35 36 36 36 35 33 < 18 10 9 8 10 8 6 6 6 8 Population Shares of Different Age Groups 18-24 12 18 11 9 7 10 7 10 9 25-44 53 53 52 54 54 48 52 51 55 45-64 21 25 24 23 24 29 28 26 23 65+ 4 5 6 4 7 7 7 6 5

Age distribution of the Foreign-born in the US: 1990, 1994-2001

Other foreign-born: Year Median Age 1990 1994 1995 1996 1997 1998 1999 2000 2001 37 36 37 37 37 37 38 37 38 < 18 11 11 11 11 10 10 9 10 10 Population Shares of Different Age Groups 18-24 12 12 12 11 12 11 11 11 11 25-44 41 43 43 43 43 44 44 43 44 45-64 22 22 23 23 24 24 24 24 25 65+ 14 12 12 11 11 11 12 11 11

The proportion of the working age group (18-65) in the total population on average for the period 1994 to 2001 is higher for the Indian-born with 88 percent much higher than the native-born average of 60 percent and the foreign-born of 78 percent. Conversely, it is needless to add that the percentage of the dependent population is much lower in the Indian-born population compared to the native-born and the other foreign-born in the U.S.

Educational Attainment of Native-born: 1990, 1994-2001

Native-born: Year Population Shares of Different Levels of Education <High School 1990 1994 1995 1996 1997 1998 1999 2000 2001 17 13 12 12 11 11 10 10 9 High School Some Graduate College 32 36 35 35 35 35 34 34 33 28 27 28 28 28 28 28 29 29 Bachelors Graduate Degree Level 15 16 17 18 18 18 19 19 19 8 8 8 8 8 8 9 9 9 Graduate Level Breakdown Masters Professional 5 6 6 6 6 6 6 7 7 2 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Ph.D

Educational Attainment of Indian-born: 1990, 1994-2001

Indian-born: Year Population Shares of Different Levels of Education <High School 1990 1994 1995 1996 1997 1998 1999 2000 2001 12 8 8 8 7 6 6 6 3 High School Some Graduate College 11 9 10 13 16 14 10 8 9 14 15 12 12 10 15 10 9 10 Bachelors Graduate Degree Level 27 35 26 30 34 35 36 35 40 36 32 44 38 33 31 38 41 38 Graduate Level Breakdown Masters Professional 21 17 24 27 23 22 25 27 28 9 11 13 7 6 5 7 6 6 6 8 4 6 4 7 4 4 3 Ph.D

Educational Attainment of Other foreign-born: 1990, 1994-2001

Other foreign-born: Year Population Shares of Different Levels of Education <High School 1990 1994 1995 1996 1997 1998 1999 2000 2001 38 34 35 35 34 33 33 32 32 High School Some Graduate College 2025 25 23 24 25 25 26 25 20 17 17 18 18 16 17 17 17 Bachelors Graduate Degree Level 13 16 15 15 16 17 16 16 17 9 8 8 8 9 9 9 9 9 Graduate Level Breakdown Masters Professional 5 5 5 5 5 6 6 5 5 2 2 2 2 2 2 2 2 2 1 2 2 2 2 2 2 2 2 Ph.D

It is quite interesting to note that the average proportion of the population since 1994 to 2001 possessing the higher education degrees such as Master s, professional and PhD was higher for the Indian-born with 37 percent compared to the native- and other foreign-born possessing only 8 and 9 percent respectively. Moreover, in 2001, twenty-eight percent of Indian-born possessed the Master s degrees as against 7 and 5 percent of the native- and other foreign-born respectively. The differences are similar with professional and PhD degrees as well. If we pull together all the levels of higher education degrees i.e. as Bachelor s degree or more, the proportion is 78 percent among the Indian-born in 2001, the same for native-born and other foreign-born stands at merely 28 and 26 percent respectively.

With such higher levels of educational attainment, it is plausible to find the Indian-born in the higher income brackets compared to the native-born and the other foreign-born in the US. In the following tables, we will observe that the median income of Indian-born is always higher than that of the nativeborn and other foreign-born income. The other foreign-born population always earned least among the three groups. Population-share as a percent of the median income of the native-born workers gives a better comparison of earnings between the groups.

Income Distribution for Native-born Aged 18-64: 1990, 1994-2001

Native-born: Year Median Income 1990 1994 1995 1996 1997 1998 1999 2000 2001 20,293 19,836 20,100 20,626 21,418 21,580 22,826 23,126 23,925 0-50% 33 31 30 30 30 30 30 30 29 Population Shares (as % of Native-Median-Income) 50-100% 17 19 20 20 20 20 20 20 21 100-200% 27 28 28 29 29 29 30 29 30 200-400% 18 18 18 17 17 16 16 16 16 >400% 4 4 5 4 4 4 4 5 4

Income Distribution for Indian-born Aged 18-64: 1990, 1994-2001

Indian-born: Year Median Income 1990 1994 1995 1996 1997 1998 1999 2000 2001 20,670 21,943 24,980 25,145 24,301 27,915 31,715 29,986 28,121 0-50% 35 32 28 31 29 29 30 35 34 Population Shares (as % of Native-Median-Income) 50-100% 14 14 14 16 18 15 11 9 11 100-200% 21 24 26 25 24 23 24 18 18 200-400% 20 21 22 19 21 24 26 24 25 >400% 10 9 11 10 8 9 9 14 12

Income Distribution for Other foreign-born Aged 18-64: 1990, 1994-2001

Other foreign-born: Year Median Income 1990 1994 1995 1996 1997 1998 1999 2000 2001 14,483 13,053 13,803 13,562 13,729 14,443 14,816 15,510 16,084 0-50% 39 42 41 42 41 40 41 40 37 Population Shares (as % of Native-Median-Income) 50-100% 21 23 24 24 24 25 26 26 26 100-200% 23 21 21 22 22 21 21 21 23 200-400% 13 11 11 10 10 10 9 11 10 >400% 4 3 4 3 3 4 3 3 3

A comparison of the three groups depicts that population-share below 50 percent of the nativemedian-income is higher for the other foreign-born followed by the Indian-born and the native-born. But the population-share of the Indian-born in the two highest income brackets i.e., above-200 percent of the native-median-income is higher with 37 percent in 2001, followed by the native-born (20 percent in 2001) and the other foreign-born (13 percent in 2001).

Percentage Change and Income Differential of Native-born, Indian-born and Other foreign-born: 1990, 1994-2001
Year Percentage change from the previous year NativeIndianOther born born Foreignborn Percentage change from the year Indian-born Native1990 born NativeIndianOther Percentage Percentage Percentage born born Foreign- more than more than more than born nativeother other born foreign- foreignincome born born income income 1.6 42.7 40.2 -2.3 -1 1.6 5.5 6.3 12.5 14 18 6.2 20.9 21.7 17.6 35.1 53.4 45.1 36 -9.8 -4.7 -6.4 -5.2 -0.3 2.3 7.1 11.1 10.6 34.3 22 13.5 29.4 38.9 29.7 17.5 68.1 81 80.5 77 93.3 114.1 93.3 74.8 52 45.6 52.1 56 49.4 54.1 49.1 48.8

1990 1994 1995 1996 1997 1998 1999 2000 2001

-2.2 1.3 2.6 3.8 0.8 5.8 1.3 3.5

6.2 13.8 0.6 -3.4 14.9 13.6 -5.5 -6.2

-9.8 5.7 -1.7 1.2 5.2 2.6 4.7 3.7

The income differential between Indian-born and nativeborn, Indian-born and other foreign-born, and nativeborn and other foreign-born were found increasing in the nineties and stood highest in the year 1999 with the Indian-born were earning 39 percent more than the native-born, and 114 percent more than the other foreign-born income. On the other hand, the native-born earned with highest 56 percent more than the other foreign-born income in the year 1997.

Though, these differences have declined after 1999, but since 1990 they have shown a considerable increase in the income differentials between Indian-born and native-born, Indian-born and other foreign-born. This would mean that, recently Indian-born immigrants in the U.S. possessed higher earning power compared to the native-born and the other foreign-born than ever before.

There might be two reasons for this; first, the Indian-born already in the US in 1990 must have registered higher rate of increase in income in the nineties; or, the new entrants of the nineties (Indian-born) to US are capably higher income earners; or both.

As a result their over all income averages have grown at higher rate than the nativeborn and other foreign-born during the period 1990-2001. The annual growth rate of income on an average for the period 1990-2001 was 3.6 percent for the Indian-born followed by 1.8 percent for native-born, and only 1.1 percent for the other foreignborn.

Thus, it is concluded that Indians in the US belong to much younger working population, having higher levels of education and earn much higher incomes compared to that of the other foreign-born and native-born Americans. The income differences have even

accelerated in the nineties giving a haunch that the recent Indian entrants must have earned much higher incomes than the natives compared to their

predecessors.

Conclusion:

This is not the lone case that Indian in the US possessed with such superior quality human capital or skills but can be presumed Indians with similar standards in other developed countries such as UK, Canada, Australia, New Zealand, Germany, Singapore, etc. If we could multiply the production of such skilled population in our country by investing heavily on education and health, would have led to a win-win situation both domestically and internationally and thereby by converting the brain drain as an opportunity to multiply reverse flows of remittances, technology and return migration. This might also be possible by forming appropriate migration policies through bilateral and multilateral means with the receiving developed countries asking them to compensate the loss of the skilled in terms of increased FDI and foreign aid in the education sector, so that we could fill the gap created by the brain drain.

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