This paper analyzes the wage dynamics of immigrants focusing on their human capital accumulation and how it is affected by potential return migration. We develop a life-cycle model describing labor market participation, wages, return decisions as well as two forms of human capital, work experience and cultural integration. The model is estimated using panel data and exploits elicited return intentions as well as realized ones. Simulations reveal that conclusions about the selection of leavers are reversed compared to models that restrict attention to exogenously given heterogeneity in wage levels. The results suggest that return intentions are key to understand the decision to invest in various forms of human capital and to explain differential wage paths. We show that conventional panel estimates understate returns to work experience, as they fail to take into account both selective return migration and selective investment in human capital. |
