Returns to pre-immigration education for non-western immigrants: Why so low?

The main purpose of this paper is to analyse the return to pre-immigration education for non-western immigrants, and explain why it is so low. Returns to one extra year of education is three times higher for ethnic Norwegians than for non-western immigrants. Using the method 'Over-Required-Under' (ORU) education approach, we reveal that this is because non-western immigrants have lower returns to overeducation and required education, and they also have lower penalties associated with undereducation. These factors together explain more than 60% all of the difference in returns to education between native born and non-western immigrants. Based on different results in this paper, we argue that both quality of education from the country of birth and lack of transferable skills may be important components.