A human capital approach to American Indian earnings: the effects of place of residence and migration

Abstract

This study utilizes a human capital approach to examine the earning differentials between different groups of American Indian couples residing on reservations and urban areas. Specifically, the focus of this paper is the determination of whether human capital effects on earnings are stronger in urban areas relative to reservation areas, and whether or not reservation-to-urban migrants receive higher returns to their human capital endowments than the reservation non-movers. Earnings decompositions are employed to examine whether differences in human capital endowments or differences in the returns to human capital are the most important factor in explaining differences in earnings of AI couples living in these two different areas.

Results indicate the American Indian couples living in urban areas do enjoy a greater return for their educational attainment. Forty-eight percent of the $11,261 household earnings gap between reservation couples and urban couples is explained by labor market differences, and 31% is explained by differences in human capital. Although living on a reservation makes it more likely an American Indian couple will change their place of residence, this study finds couples that migrate from the reservation to the urban area do not receive greater returns to their investments in human capital. Couples that migrate from the reservations to urban areas make more income than the reservation stayers primarily because of greater levels of education, work experience and other investments in human capital.

Notes

1 Snipp and Sandefur (1988) use this “prime age” group in their study of American Indian householder earnings.

2 Living on or near a reservation is defined as residing within a cluster of counties (which are classified as county groups, or PUMAs) in which at least one reservation is located. If the county was coded as a metropolitan area, MSA, or an urban area, the PUMA was not coded as a reservation area for this study.

3 Because the effect on earnings is greater for those with college educations relative to only a high school diploma, dummy variables for the two groups are used in the earnings and migration equations. The base group consists of those with less than a high school diploma.

4 Jones and Kelley refer to the three components as the unexplained differences between groups, the difference due to endowments, and the interaction between the difference in endowments and the difference in coefficients. In this study, different names for the effects are used in an attempt to more closely identify them with the reservation and urban Indian analysis.

5 Due to space constraints, the results from the regressions are discussed, but not presented in table form. The results can be obtained from the authors.