Working Paper: CEPR ID: DP851
Authors: John P. De New; Klaus F. Zimmermann
Abstract: Natives often fear that competition from foreigners in labour markets will cause wages to fall and unemployment to rise. These effects might actually be realized if natives and immigrants were substitutes. If they are complements, however, the result might be rather different. This paper outlines the issue in a framework with two types of labour, such that low-quality workers (natives and immigrants) are potential complements to high-quality (native) workers. It is hypothesized that this is a stylized description of the past West German immigration problem. Examining the wage functions of white and blue collar natives in a random effects panel model using a large sample of micro data, we find that foreigners have a negative effect on the wages of Germans as a whole. Relatively small gains are made by white collar employees with less than 20 years work experience, but these are outweighed by the larger negative effects experienced by blue collar employees.
Keywords: Earnings function; Immigration; Random effects panel models
JEL Codes: C23; F22; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign labor share (J89) | native wages (J15) |
| foreign labor share (J89) | blue-collar wages (J39) |
| foreign labor share (J89) | white-collar wages (J31) |
| foreign labor share (J89) | overall wages (J31) |
| foreigners (F22) | negative effect on wages of Germans (F66) |