Immigrants’ Human Capital Return and the Relationship between Risk and Return: The Case of Canada

Abstract

We consider that an immigrant has a portfolio of human capital consisting of education, work experience and languages and each asset is characterized by a risk and a return. The approach of Mincer (1974) was adopted and the effect of the similarity between Canada and the country of origin on salary was taken into account to determine the returns of these various components of human capital. Then, the methodology of Pereira and Martins (2002) was used to assess the risks associated with human capital, i.e. the risk for an individual to be in the lower part of the income distribution. The results indicate that human capital is not perfectly transferable and show that the relationship between risk and return is similar to that relating to financial assets: it is negative for assets that represent insurance for their owners and positive for the others. In addition, the accumulation of work experience in Canada and similar countries is accompanied by an increase in risk and a decrease in returns. Contrary to our expectations, the results indicate that the risk does not decrease with education level.