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We analyze the effects of formal recognition of foreign higher education on employment probabilities and earnings for newly arrived immigrants in Sweden. Prior research has found that immigrants have lower returns on education if it was acquired in the country of origin than if it was acquired in the host country. One reason for this is that foreign credentials work poorly as productivity signals and risk-averse employers avoid employees with credentials they do not fully understand. A formal recognition statement can help overcome this problem by providing credible information about the foreign education, thus reducing uncertainty. Data consists of immigrants who, within the first ten years of residence in Sweden, had their foreign degree formally recognized during 2007–2011. Using fixed effects regressions, we estimate the treatment effect of official recognition to be 4.4 percentage points higher probability of being employed, and 13.9 log points higher wage for those with employment. We also find considerable treatment effect heterogeneity across subcategories of immigrants from different regions of origin, with different reasons for immigration and who obtained recognition during different economic conditions. Our conclusions are that the mechanism of employer uncertainty is real, and that recognition does reduce it. But as the signal of foreign education becomes better, other mechanisms such as human capital transferability problems and quality differences, and the ability to use foreign human capital, become more salient, leading to heterogeneous effects.

In linking self-employment before and after migration, the often-cited home-country self-employment hypothesis states that immigrants who come from countries with large self-employment sectors are themselves more likely to have been self-employed and hence have a higher propensity for self-employment in their destination country. Using Swedish data, this study shows that the first part of the hypothesis, that origin-country average rates of self-employment can be used to approximate individual experience, is false; but the second part, the connection between self-employment before and after migration, is true if the measurement is done on the individual level. Migrants who have been self-employed before migration accumulate entrepreneurial human capital, making future self-employment a more desirable labor market alternative vis-a-vis wage employment. But because of migrant selection, this association cannot be captured by aggregate measures, and this is the reason why the home-country self-employment hypothesis, although intuitive, has underperformed in previous empirical tests. Fulltext published under Creative Commons Attribution 4.0 International License.https://creativecommons.org/licenses/by/4.0/