Against the background of anxieties in the German public about a deterioration of the labour market as a result of immigration and trade, labour economists have examined the hypothesis that immigration causes a decline in wages and an increase in unemployment among natives, affecting low-skilled workers harder. In Discussion Paper No. 1318, John Haisken-De New and Research Fellow Klaus Zimmermann merge trade and migration as explanatory variables of their investigation. Macro level data, such as the share of foreigners per industry, state and year, real Deutschmark values of exports, imports and output, again per industry and year, are combined with the West German Socio-Economic Panel, a large micro data set.

With regard to wages, the authors find that a larger share of foreigners in the labour force has a positive impact on wages. Migrants seem to be complements to high-skilled individuals, while there is no effect on low-skilled wages. They affect wages of white-collar workers little, but have a positive impact on high-skilled, blue-collar workers. Moreover, earnings regressions suggest that male wages are negatively affected by the trade deficit ratio (net imports divided by output, TDR). In terms of migration and job mobility, the TDR indicates that increasing competition reduces occupational mobility and intra-firm flexibility for poorly-experienced workers, but supports inter-firm flexibility across all skill groups. Occupational mobility is affected more negatively for lower job levels and greater experience. The impact of immigrants is less pronounced. Intra-firm mobility is affected negatively in the full sample, and this seems to be driven by individuals with a low job level and/or low experience. The overall conclusion of the paper is that trade seems to be the more relevant variable for the German labour market, and also, potentially, the more dangerous threat. It may be that, seen in a longer time perspective, trade has caused labour market problems.

Wage and Mobility Effects of Trade and Migration
John P Haisken-De New and Klaus F Zimmermann