The native-immigrant gap in wealth and financial decisions

Graziella Bertocchi, Marianna Brunetti, Anzelika Zaiceva

The financial decisions made by immigrants are likely to differ substantially from those made by natives. Using data from a Bank of Italy survey, this column compares native Italian and immigrant households and shows that immigrants find themselves worse-off both in terms of wealth holdings and allocation across assets. These gaps can affect immigrants’ wellbeing, inhibit integration, and have consequences for the country’s financial markets.

The financial decisions made by immigrants are likely to differ substantially from those made by natives, both in terms of the amount of wealth they hold and its allocation into real and financial assets. These gaps can affect immigrants’ wellbeing and their ability to integrate into a host country. Indeed, any wealth disparity affects immigrants’ chances to assimilate, and the effect is compounded by the fact that the allocation of portfolios affects wealth accumulation itself. The ability to own a house, often a large fraction of total wealth, is another crucial vehicle towards integration, and in turn depends on the availability of credit through traditional channels, which can be especially problematic for immigrants (though informal networks can sometimes alleviate this disadvantage). Cultural differences may play as important a role as economic differences in determining gaps in the financial behaviour of immigrants and natives.

The relatively small literature on nativity gaps in wealth and financial behaviour includes studies by Abdul-Razzak et al. (2015), Bauer et al. (2011), Cobb-Clark and Hildebrand (2006), Mathä et al. (2011), and Ferrari (2020). In a new paper (Bertocchi et al. 2020), we focus on Italy, a country which has scarcely been studied in this regard, even though immigration there has become a hotly debated issue. Over the past 20 years, intense inflows of immigrants, many of them from Eastern Europe and Africa, have turned Italy from an emigration country to an immigration one, with the share of foreign-born reaching over 10% (OECD 2018).

Data provided by the Bank of Italy’s Survey of Household Income and Wealth (SHIW) allow us to draw an extraordinarily comprehensive picture. First, we have information on a wide range of wealth components for the heads of foreign-born and native households, including informal debts, which can be very important for migrants. Second, the survey questionnaire comprises a large set of immigrants’ characteristics, such as immigration histories, countries of origin, patterns of intermarriage, and citizenship status. Because immigrants are a selected group, the information on risk preferences is particularly important. Last but not least, the data cover a sufficiently long period, from 2006 to 2014, allowing us to assess the impact of the Great Recession.

The nativity gap in wealth accumulation and its distribution

We start by looking at the gap in net wealth holdings along the entire net wealth distribution, including both real and financial components, and controlling for year and macro-region fixed effects as well as a wide range of individual characteristics. The latter reveal that, relative to natives, immigrant household heads are more likely to be male, to earn less, and to be unemployed while they are younger and more risk averse. Regression analysis shows that the median net wealth of immigrant households in the period under consideration is almost €22,000 lower (at constant 2010 prices) than the median net wealth of natives, with a sizeable gap along the entire wealth distribution (Figure 1). The number of years since migration exerts a further negative effect. The pattern we describe for aggregate wealth is largely explained by the real estate component, by far the most important (almost 80% for natives and as large as 90% for immigrants).

Figure 1 Natives versus immigrants: Net wealth at different quantiles of the distribution.

Source: Our elaboration of Bank of Italy data 2006-2014.

Note: Figures are in Euro at 2010 constant prices.

Further analyses uncover significant heterogeneity among migrants themselves. The cohorts that migrated during the 1980s and 1990s display relatively larger gaps. Immigrants from EU15 and North America are not significantly poorer than natives. The patterns of intermarriage also matter: among mixed couples, those with an immigrant head perform similarly to those composed of two natives, while those with a native head are poorer along the entire wealth distribution, especially if the native head is female. The overall picture is confirmed if we switch to a definition of immigrant as a non-citizen, rather than foreign-born. Lastly, the nativity gaps are largely attributable to the post-crisis period (since the survey is administered every other year, we interpret the three waves starting with 2010 as post-crisis).

The nativity gap in asset allocation decisions

We explore a wide range of decisions, including the decision to own residential properties, valuables, or businesses; to invest in risky assets; and to hold a mortgage or informal debts with family members (Figure 2). After controlling, we find a negative relationship between the immigrant status of the household head and each of these outcomes, with the exception of informal debts. Moreover, immigrant status increases the likelihood of financial fragility, defined (following Brunetti et al. 2016) as a condition in which a household does not have a sufficient liquidity buffer to face unexpected expenses.

Figure 2 Natives versus immigrants: Financial decisions

Source: Our elaboration of Bank of Italy data 2006-2014.

As for wealth holdings, the interaction between immigrant status and immigration histories, source countries, and patterns of intermarriage also matter, in a variegated fashion. For instance, mixed couples tend to behave like couples who were both native-born, presumably because the formation of a mixed couple involves an assimilation process. Following the Great Recession, the gap has become smaller for home ownership and has disappeared for mortgages, possibly because native households have also reduced home ownership and mortgages. Informal debt holdings, on the other hand, have become more likely for immigrants, as has the condition of financial fragility.

A potential issue with the results we have presented so far is that immigrants and native-born Italians may be hardly comparable as individuals. Reassuringly, our results broadly hold after applying a propensity score-matching estimator that restricts our comparison to individuals with similar characteristics (Ferrari 2020 applies a similar strategy to older Europeans’ wealth holdings).

To conclude, our study confirms that immigrants in Italy find themselves worse-off than native-born Italians in terms of wealth holdings and allocation across assets. The consequences are potentially sizeable for the immigrants themselves and for the integration process. Furthermore, as the share of immigrant households grows across most European countries, these gaps are likely to imply visible consequences for financial markets, the macroeconomic context, and social policies.

References

Abdul-Razzak, N, U O Osili and A Paulson (2015), “Immigrants’ Access to Financial Services and Asset Accumulation”, in B R Chiswick and P W Miller (eds.), Handbook of the Economics of International Migration, Volume 1, MIT Press. pp. 387-442.

Bauer, T K, D A Cobb-Clark, V A Hildebrand and M Sinning (2011), “A Comparative Analysis of the Nativity Wealth Gap”, Economic Inquiry 11(4): 989-1007.

Bertocchi, G, M Brunetti and A Zaiceva (2020), “The Financial Decisions of Immigrant and Native Households: Evidence from Italy”, CEPR Discussion Paper No. 13339R.

Brunetti, M, E Giarda and C Torricelli (2016), “Is Financial Fragility a Matter of Illiquidity? An Appraisal for Italian Households”, Review of Income and Wealth 62(4): 628-649.

Ferrari, I (2020), “The Nativity Wealth Gap in Europe: A Matching Approach”, Journal of Population Economics 33(1): 33-77.

Mathä, T Y, A Porpiglia and E Sierminska (2011), “The Immigrant/Native Wealth Gap in Germany, Italy and Luxembourg”, European Central Bank Working Paper No. 1302.

Cobb-Clark, D A and V A Hildebrand (2006), “The Wealth and Asset Holdings of U.S.- Born and Foreign-Born Households: Evidence from SIPP Data”, Review of Income and Wealth 51(1): 17-42.

OECD (2018), International Migration Outlook, OECD Publishing.