SKILLS HETEROGENEITY AND IMMIGRANT-NATIVE WAGE GAP IN THE EUROPEAN COUNTRIES

The paper analyses individual human capital, measured by the education, literacy and numeracy skills, and explores to what extent immigrants employ their cognitive skills at work. Based on the Program of International Assessment of Adult Competencies (PIAAC) data for 15 European countries, we document that, on average, foreign-born respondents achieve substantially worse scores in literacy and numeracy test domains in majority of analysed countries. Only immigrants in the Nordic countries reveal skill improvement over immigration tenure. Once we account for both skill levels and use of skills at work in wage regressions, no statistically significant gap in earnings across immigrants and natives remains. Although, once immigrants attain comparable to natives' skill use frequency, their pay disadvantage turns statistically insignificant in all countries, except Estonia and Ireland. The results are leading us to the conclusion that potential for development and utilization of immigrants' skills in the European labour markets is still underused. Immigrants are not yet sufficiently well integrated in labour markets in most of the European countries.