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

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. (C) 2004 Elsevier Inc. All rights reserved.